DISCLOSURE REPORT - HSH Nordbank · DISCLOSURE REPORT AS AT 3 ... Full reconcilation of components of own funds with the audited ... informal agreement in principle and defines it

STRONG FOR ENTREPRENEURS

DISCLOSURE REPORT AS AT 3 DECEMBER 2016 ACCORDING TO PART EIGHT CRR

DISCLOSURE REPORT

1. Introduction and general principles 4

2. Own funds and capital requirements 9

2.1. Own funds 9

2.2. Capital requirements 13

2.3. Provision of a guarantee facility 16

3. Default risk 19

3.1. Credit risk adjustments 19

3.2. Use of ECAI 25

3.3. Counterparty credit risk 26

3.4. Equity holdings in the banking book 29

3.5. Information on the use of IRB approach for credit risk: methods & rating systems 31

3.6. Information on the use of IRB approach for credit risk: quantitative part 35

3.7. Use of credit risk mitigation techniques 42

4. Securitisations 45

4.1. Nature and extent of securitisation activities and risks involved 45

4.2. Risk weighting and accounting of securitisation transactions 46

4.3. Exposure values and capital requirements of securitised receivables 48

4.4. Securitisation activities in the reporting year and important changes 52

5. Market risk, operational risk and liquidity risk 54

5.1. Market risk and interest rate risk 54

5.2. Operational risk 55

5.3. Liquidity risk 56

6. Unencumbered assets 57

7. Leverage ratio 59

8. Countercyclical capital buffer 65

8.1. Geographical breakdown of relevant credit exposures 65

8.2. Amount of countercyclical capital buffer 68

9. Notes 69

9.1. Consolidation matrix 69

9.2. Own funds in accordance with article 437 (1) CRR – sub-group 71

9.3. Own funds in accordance with article 437 (1) CRR – holding 81

9.4. Main features of equity instruments 94

10. List of abbreviations 123

CONTENT

[Tab. 1] Structure of own funds and regulatory adjustments of the sub-group in € m ............................................................................................... 9

[Tab. 2] Capital ratios of the sub-group in % ...................................................................................................................................................... 9

[Tab. 3] Terms and conditions of own funds instruments ..................................................................................................................................... 11

[Tab. 4] Structure of own funds and regulatory adjustments of the holding in € m ................................................................................................ 12

[Tab. 5] Capital ratios of the holding in % ....................................................................................................................................................... 12

[Tab. 6] Capital requirements of the sub-group in € m ....................................................................................................................................... 14

[Tab. 7] Capital requirements of the holding in € m .......................................................................................................................................... 15

[Tab. 8] Exposure values by exposure class in € m ........................................................................................................................................... 20

[Tab. 9] Exposure values by geographical areas in € m .................................................................................................................................... 20

[Tab. 10] Exposure values by economic sectors in € m ........................................................................................................................................ 21

[Tab. 11] Exposure values by contractual remaining maturity in € m ..................................................................................................................... 21

[Tab. 12] Division of receivables into past due and impaired ............................................................................................................................... 22

[Tab. 13] Development of loan provisions in € m................................................................................................................................................ 23

[Tab. 14] Impaired or past receivables by economic sectors in € m ...................................................................................................................... 23

[Tab. 15] Impaired or past due receivables by geographical areas in € m ............................................................................................................ 24

[Tab. 16] Rating Agencies by receivables category ............................................................................................................................................ 25

[Tab. 17] CRSA/ IRBA exposure values by regulatory risk weight in € m .............................................................................................................. 26

[Tab. 18] Net derivatives credit exposure in € m ................................................................................................................................................ 27

[Tab. 19] Counterparty credit risk in € m ........................................................................................................................................................... 28

[Tab. 20] Nominal value of credit derivatives eligible for collateral in € m ............................................................................................................ 28

[Tab. 21] Nominal values of credit derivatives in € m ......................................................................................................................................... 28

[Tab. 22] Valuation of equity holding instruments in € m ..................................................................................................................................... 30

[Tab. 23] Realised and unrealised gains or losses from equity holding instruments in € m ....................................................................................... 31

[Tab. 24] Rating modules of HSH Nordbank approved by the supervisory authorities ............................................................................................ 32

[Tab. 25] Connection between internal and external credit assessments ................................................................................................................ 33

[Tab. 26] Avg. PD, avg. LGD, avg. RW and exposure values in € m by rating ranges ............................................................................................ 37

[Tab. 27] Avg. PD, avg. LGD, avg. RW and exposure value in € m by geographical location ................................................................................. 39

[Tab. 28] Assessment basis and avg. exposure value in € m ................................................................................................................................ 40

[Tab. 29] Actual losses in the lending business in € m ......................................................................................................................................... 41

[Tab. 30] Expected losses and actual losses in the lending business in € m ........................................................................................................... 42

[Tab. 31] Total amount of collateralised CRSA exposure values (without securitisations) in € m ................................................................................ 44

[Tab. 32] Total amount of collateralised IRBA exposure values (without securitisations) in € m ................................................................................. 44

[Tab. 33] Determination of risk-weighted exposure for receivables securitised as originators ................................................................................... 47

[Tab. 34] Accounting policies for receivables securitised as originators................................................................................................................. 47

[Tab. 35] Securitisation transactions initiated by HSH Nordbank .......................................................................................................................... 48

[Tab. 36] Exposure values of securitised receivables in € m ................................................................................................................................. 49

[Tab. 37] Exposure values of retained or purchased securitisation positions in € m ................................................................................................ 49

[Tab. 38] Exposure values and capital requirements for retained or purchased securitisation items acc. to risk weight ranges in € m ........................... 50

[Tab. 39] Securitisation positions to be deducted from own funds or to be taken into account with a risk weight of 1,250 % in € m ............................ 51

[Tab. 40] Re-securitisation related hedge transactions in € m ............................................................................................................................... 51

[Tab. 41] Securitised trading book risk positions in € m ...................................................................................................................................... 52

[Tab. 42] Impaired and past due securitisations, actual losses on securitised receivables in € m .............................................................................. 52

[Tab. 43] Capital requirements for market risk in € m.......................................................................................................................................... 54

[Tab. 44] Interest rate risk in the banking book in € m ........................................................................................................................................ 55

[Tab. 45] Capital requirements for operational risk for the sub-group in € m .......................................................................................................... 56

[Tab. 46] Capital requirements for operational risk for the holding in € m ............................................................................................................. 56

[Tab. 47] Assets in € m ................................................................................................................................................................................... 58

[Tab. 48] Collateral received in € m ................................................................................................................................................................. 58

[Tab. 49] Encumbered assets/ collateral received and associated liabilities in € m ................................................................................................ 58

[Tab. 50] LRSum: Summary reconciliation of accounting assets and leverage ratio exposures in € m for the sub-group ............................................... 59

[Tab. 51] LRCom: Leverage ratio common disclosure in € m for the sub-group ....................................................................................................... 60

[Tab. 52] LRSPl: Split-up of on balance sheet exposures (excluding derivatives, SFTs and exempted exposures) in € m for the sub-group ...................... 61

[Tab. 53] LRQua: Free format text boxes foR disclosure on qualitative items for the sub-group .................................................................................. 61

[Tab. 54] LRSUM: Summary reconciliation of accounting assets and leverage ratio exposures in € m for the holding ................................................. 62

[Tab. 55] LRCom: Leverage ratio common disclosure in € m for the holding........................................................................................................... 63

[Tab. 56] LRSPl: Split-up of on balance sheet exposures (excluding derivatives, SFTs and exempted exposures) in € m for the Holding ......................... 64

[Tab. 57] LRQua: Free format text boxes foR disclosure on qualitative items for the holding ..................................................................................... 64

[Tab. 58] Geographical breakdown of relevant credit exposures for the calculation of the CCB .............................................................................. 66

[Tab. 59] CCB sub-group ................................................................................................................................................................................. 68

[Tab. 60] CCB holding .................................................................................................................................................................................... 68

[Tab. 61] Consolidation matrix ......................................................................................................................................................................... 69

[Tab. 62] Disclosure of the type and amounts of the specific components of own funds during the transitional period sub-group in € m ....................... 71

[Tab. 63] Full reconcilation of components of own funds with the audited financial statements in € m sub-group ........................................................ 76

[Tab. 64] Disclosure of the type and amounts of the specific components of own funds during the transitional period holding in € m .......................... 81

[Tab. 65] Full reconcilation of components of own funds with the audited financial statements in € m Holding .......................................................... 89

[Tab. 66] Description of the main features of own funds instruments issued ............................................................................................................ 94

LIST OF TABLES

Due to rounding, numbers presented throughout this document may not add up precisely to the totals provided and percentages may not pre-

cisely reflect the absolute figures.

This is an English translation of the original German version of the disclosure report.

4 HSH NORDBANK 2016

Overview The disclosure is made in accordance with the regulatory requir

ments of the Basel III framework (CRR/CRD IV). The objective of the

disclosure requirements is to strengthen the market discipline of the

institutions. For that reason, additional information on the risk profile

will be provided for market participants, exceeding the information

that have already been published in the Annual Report.

Ownership structure, guarantee and EU proceedingsThe principal owner of HSH Nordbank AG as at the 2016 year end is

HSH Beteiligungs Management GmbH with a shareholding of 94.9

Private investors advised by J.C. Flowers & Co. LLC also have a shar

holding of 5.1 %. The Free and Hanseatic City of Hamburg and the

federal state of Schleswig-Holstein indirectly hold a combined shar

holding of 89.35 % via HSH Beteiligungs Management GmbH and

5.55 % is held by the Savings Bank Association (Sparkassen

Giroverband) for Schleswig-Holstein.

The federal states of Hamburg and Schleswig-Holstein issued via HSH

Finanzfonds AöR a guarantee in favour of HSH Nordbank

vided capital relief (second loss guarantee), but which did not affect

liquidity at that time, under which payment defaults in a specified

portfolio are hedged. This second loss guarantee is called Sunrise

guarantee or Sunrise transaction.

The business activities of HSH Nordbank are split between the Core

Bank, which includes the strategic business divisions

Core Bank, in which predominantly non-performing portfolios

(mainly part of the Sunrise portfolio) from the years prior to 2009 are

held.

First piece losses incurred in this portfolio are to be borne by

HSH Nordbank itself up to an amount of € 3.2 billion. Further details

are set out in Note 3 in the Group financial statements. Details r

1. INTRODUCTION AND GEN

the regulatory require-

ments of the Basel III framework (CRR/CRD IV). The objective of the

disclosure requirements is to strengthen the market discipline of the

institutions. For that reason, additional information on the risk profile

arket participants, exceeding the information

that have already been published in the Annual Report.

General introductory information for a better overall understanding

of the disclosure report regarding the EU proceedings and the guara

tee issued by the Free and Hanseatic City of Hamburg and the federal

state of Schleswig-Holstein (hereinafter the Länder) is presented. This

is based on excerpts of the financial statement 2016 of the HSH

Nordbank. Further details are shown in the financial statement.

structure, guarantee and EU proceedings AG as at the 2016 year end is

HSH Beteiligungs Management GmbH with a shareholding of 94.9 %.

Private investors advised by J.C. Flowers & Co. LLC also have a share-

The Free and Hanseatic City of Hamburg and the

indirectly hold a combined share-

% via HSH Beteiligungs Management GmbH and

% is held by the Savings Bank Association (Sparkassen- und

Holstein issued via HSH

Nordbank that pro-

vided capital relief (second loss guarantee), but which did not affect

h payment defaults in a specified

. This second loss guarantee is called Sunrise

are split between the Core

Bank, which includes the strategic business divisions, and the Non-

performing portfolios

(mainly part of the Sunrise portfolio) from the years prior to 2009 are

First piece losses incurred in this portfolio are to be borne by

€ 3.2 billion. Further details

are set out in Note 3 in the Group financial statements. Details re-

garding the impact of the guarantee on the net assets, financial pos

tion and earnings in 2016 are set out in the Economic report section.

In 2013, the guarantee facility provided by Hamburg and Schleswig

Holstein was replenished after a reduction in 2011 from

the original facility of € 10 billion in view of the changed underlying

conditions. This measure was initially provisionally approved by

EU Commission in 2013. At the same time, the EU Commission

instituted state aid proceedings to investigate whether the replenis

ment of the guarantee is consistent with state aid rules. In these EU

state aid proceedings the owners, Hamburg and Schlesw

the Federal Republic of Germany and the EU Commission, reached

an informal agreement on 19 October 2015 to provide significant

relief to the Bank from the adverse impact of legacy assets and guara

tee fees. It is also envisaged that HSH Nordb

February 2018. Based on the informal agreement the EU Commission

reached a formal decision in the state aid proceedings on 2 May 2016

(hereinafter referred to as the EU decision) and thereby finally a

proved the replenishment of the second loss guarantee issued by the

federal states. The decision of the EU Commission confirms the

informal agreement in principle and defines it in concrete terms and

is based on a list of conditions and commitments, which contains the

foundations of the agreement, provided to the EU Commission by the

Federal Republic of Germany as the representative of the federal state

owners of HSH Nordbank.

INTRODUCTION AND GENERAL PRINCIPLES

General introductory information for a better overall understanding

of the disclosure report regarding the EU proceedings and the guaran-

ree and Hanseatic City of Hamburg and the federal

(hereinafter the Länder) is presented. This

is based on excerpts of the financial statement 2016 of the HSH

Nordbank. Further details are shown in the financial statement.

ing the impact of the guarantee on the net assets, financial posi-

tion and earnings in 2016 are set out in the Economic report section.

antee facility provided by Hamburg and Schleswig-

Holstein was replenished after a reduction in 2011 from € 7 billion to

€ 10 billion in view of the changed underlying

conditions. This measure was initially provisionally approved by the

EU Commission in 2013. At the same time, the EU Commission

instituted state aid proceedings to investigate whether the replenish-

ment of the guarantee is consistent with state aid rules. In these EU

state aid proceedings the owners, Hamburg and Schleswig-Holstein,

the Federal Republic of Germany and the EU Commission, reached

an informal agreement on 19 October 2015 to provide significant

relief to the Bank from the adverse impact of legacy assets and guaran-

Nordbank be privatised by 28

February 2018. Based on the informal agreement the EU Commission

reached a formal decision in the state aid proceedings on 2 May 2016

(hereinafter referred to as the EU decision) and thereby finally ap-

second loss guarantee issued by the

federal states. The decision of the EU Commission confirms the

agreement in principle and defines it in concrete terms and

is based on a list of conditions and commitments, which contains the

agreement, provided to the EU Commission by the

Federal Republic of Germany as the representative of the federal state

ERAL PRINCIPLES

INTRODUCTION AND GENERAL PRINCIPLES DISCLOSURE REPORT 5

The purpose of the structural measures envisaged in the list of condi-

tions and commitments is to improve the financial and risk situation

and create the basis for a sustainable structure and viable business

model.

However, from today’s perspective, the originally intended improve-

ments are due to the existing capital structures only partially suited to

reduce the high proportion of non-performing exposure (NPE) sig-

nificantly. The second loss guarantee granted in 2009 had no direct

liquidity effect at that time, on the basis of which the necessary, accel-

erated winding down of non-performing loans could have been car-

ried out. Instead, complex settlement conditions under the guarantee

agreement mean that economically sound wind-down measures can

only be taken to a limited extent. Furthermore, total guarantee premi-

ums of € 3.2 billion paid to date have also put considerable strain on

the capital base available for the absorption of potential losses. From

today’s perspective, the recapitalisation of HSH Nordbank at the time

of the financial crisis in the form of a second loss guarantee of € 10

billion has proved to be disadvantageous from an economic point of

view when compared to a strengthening of capital at that time that

would have had an effect on liquidity.

The formation of a holding structure under the EU decision should

have mainly relieved HSH Nordbank of a proportion of the high

guarantee fees, which have adversely impacted the business model and

restructuring efforts. HSH Nordbank as the parent institution of the

financial holding company (holding) for prudential purposes is,

however, required to comply with the regulatory requirements at the

financial holding level. In this regard, the intended relief for

HSH Nordbank only has a limited effect on the financial holding

group due to the regulatory requirements. This results in restrictions,

particularly with respect to the requirements for compliance with

capital ratios, large exposure limits, regulatory reporting and the

recovery plan. HSH Nordbank’s Management Board has no influence

over the decisions made by the holding.

The structural measures include the sale of non-performing loans of

€ 5.0 billion to the federal state owners at market values determined by

the EU Commission under state aid aspects and the sale of a legacy

portfolio mainly covered by the guarantee of up to € 3.2 billion in the

market. A further point in the EU decision is the change relating to

the future fee structure for the second loss guarantee, which is linked

to the formation of a holding company and a subsidiary, which com-

prises HSH Nordbank’s operating business and is to be privatised.

Furthermore, it is intended to sell the operating company by 28 Feb-

ruary 2018. This divestment deadline is met upon the signing of a

purchase agreement and may be extended by up to six months with

the consent of the EU Commission where there are delays in the

technical implementation of the model for reasons outside the control

of the federal states.

Rigorous implementation of the EU structural measures Following the EU decision the Bank immediately started making

preparations and implementing the structural measures. Important

structural measures were completed as far as possible in line with the

plan.

In this connection, a portfolio of non-performing shipping loans of €

5 billion had already been sold to the federal state-owned hsh

portfoliomanagement AöR as at 30 June 2016 (reporting date: 31

December 2015), under which the Bank was relieved to an apprecia-

ble extent of the burden of legacy loans in the Shipping division,

which were entered into as part of the significant business expansion

in the years up to 2009. The sales price (€ 2.4 billion) determined by

the EU Commission for this portfolio was paid to the Bank in the

third quarter of 2016, thereby further improving the Bank’s liquidity

position. Losses (€ 2.6 billion) incurred on the sale were invoiced

under the guarantee as part of the settlement of losses, of which € 1.3

billion was attributable to the first loss piece and € 1.3 billion to the

second loss piece of the guarantee. The second loss piece was drawn

down by € 1.9 billion in total as at 31 December 2016. Nevertheless,

the Bank has a very high portfolio of legacy assets from the years prior

to 2009 due to the complex settlement conditions under the guarantee

agreement and the only low level of relief relative to the total NPE

volume provided under the EU decision, which is making the privati-

sation process more difficult and continues to be systematically

wound down.

The Bank also started making intensive preparations in the second

half of 2016 for the planned portfolio sales in the market. The sale of

non-performing loans of up to € 3.2 billion was approved as part of

the implementation of the EU decision. In this regard, the Bank se-

lected important legacy portfolios with a clear focus on further reduc-

ing risk on the Bank’s balance sheet (market portfolio) and conducted

a sales process in various phases. As a result of this process, a contrac-

tual agreement for the sale of a loan portfolio of around € 1.6 billion

was signed on 27 January 2017. This represents a slight delay in the

planned implementation by the 2016 year end. The impact on earn-

ings was nevertheless recognised in the financial statements as at 31

December 2016. This portfolio mainly consists of around € 0.8 billion

of aircraft financing transactions and around € 0.5 billion of Conti-

nental European commercial real estate loans from the years prior to

2009. Additional relief of around € 0.3 billion was also achieved by

HSH Nordbank by individual sales to other investors and principal

repayments within the portfolio originally held for sale. The parties

have agreed not to disclose details of the purchase price. In addition to

meeting further conditions the purchase agreements still require

approval from the cartel authorities, which is expected to be received

in the second quarter of 2017.

Further details on the sale of the market portfolio are set out in the

Forecast, opportunities and risks report and Note 34 in the Group

explanatory notes.

6 HSH NORDBANK 2016

Scope of application This report is focused – as in previous years and known by the market

participants – on HSH Nordbank Group (hereafter sub-group) on a

voluntary basis. Therefore all qualitative and quantitative information

is based on the sub-group level.

To fulfill the regulatory requirements in accordance with Article 13 (2)

CRR the bank has to report on the financial holding group level. In

large parts disclosure-data and content of both levels - holding and

sub-group – is identical. Therefore, only in case of significant differ-

ences both levels will be reported and explained separately. The sub-

group level will always be shown in first place followed by the holding

level. This applies to own funds, leverage ratio, countercyclical capital

buffer, own funds requirements for operational risk and partly the

default risk.

In accordance with Part Eight CRR the disclosures reflect those enti-

ties belonging to the Holding within the meaning of Section 10a of the

German Banking Act (KWG) in conjunction with Article 13 (2) CRR

(regulatory scope of consolidation). The scope of consolidation rec-

ognised for financial accounting/reporting purposes under Interna-

tional Financial Reporting Standards (IFRS) as described in the An-

nual Report of the HSH Nordbank differs from the regulatory scope

of consolidation.

In Table 61 (Notes, Section 9.1) the consolidation principle pursuant

to Article 436 subparagraph (b) CRR as well as the difference between

the regulatory and IFRS consolidations are described. All entities to be

consolidated and their allocation to the regulatory and/or financial

accounting scope of consolidation are listed. The entities are allocated

to entity types for the purposes of the regulatory consolidation on the

basis of the definitions in accordance with Article 4 (1) CRR.

In principle, own funds and capital can be transferred within the

holding-group pursuant to Article 436 subparagraph (c) CRR. The

feasibility can be restricted due to existing supervisory requirements

or other legal obligations or restrictions to the holding, the holding-

group or the single legal entities of the holding-group.

With regard to the regulatory capital adequacy of subsidiaries in

which there are other shareholders in addition to the HSH Nordbank,

a change in capital and/or own funds requires the approval of the co-

shareholders and their respective bodies. In the case of subsidiaries

which are also institutions, changes in capital must be approved where

necessary by the appropriate banking supervisory authorities.

There are no cases where the actual own funds are less than required

in relation to subsidiaries within the meaning of Article 436 subpara-

graph (d) CRR. A capital shortfall is the amount by which the actual

capital is lower than the regulatory capital required.

Material, propriety or confidential information Under Article 432 (1) CRR institutions may omit one or more of the

disclosures listed in Part Eight Title II CRR, if the information provid-

ed by such disclosures is not regarded as material. In general,

HSH Nordbank fully meets all disclosure requirements with one

exception where the aggregation option is used due to immateriality.

Credit Risk Standardised Approach exposure classes, which account

for an immaterial proportion of the total exposure value, are aggregat-

ed to meet the requirements under Article 442 subparagraphs (d) to (f)

CRR. For this purpose, HSH Nordbank defines a proportion of a

maximum of 8 % as immaterial. This corresponds to the regulatory

ceiling for the permanent use of the Standardised Approach for credit

risk (permanent partial use).

Under Article 432 (2) institutions may also omit one or more items of

information included in the disclosures listed in Part Eight Title II and

III CRR, if those items include information which is regarded as

proprietary or confidential. HSH Nordbank has not made use of this

option in this report and also does not currently consider that this will

be required in the future.

Frequency of disclosure HSH Nordbank discloses the information required under Part 8 CRR

in accordance with Article 433 CRR fully annually at the reporting

date.

For information that need to be disclosed more frequently than once a

year, HSH Nordbank adheres to the BaFin’s circular 05/2015 dated 8

June 2015 on the implementation of the EBA guideline on disclosure

of materiality, proprietary and confidentiality and on disclosure fre-

quency (circular 05/2015 (BA)) and hence, complies with the EBA

guideline regarding Articles 432 (1) and (2) and Article 433 CRR

(EBA/GL/2014/14). The consolidated total assets of HSH Nordbank

exceed € 30 billion. In accordance with the criterion set forth in Title

VI (18) subparagraph (b) in conjunction with Title VIII (26) of this

circular, HSH Nordbank provides disclosures semi-annually, in line

with the frequency of the publication of its financial statements. The

content of the semi-annual disclosure report complies with the re-

quirements laid down in Title VIII (26) subparagraph (b) of the circu-

lar 05/2015 (BA). With respect to Article 451, Article 452 subpara-

graph (d) and (e) CRR as well as to other information that may rapidly

change, and to information that change significantly during the re-

porting period, HSH Nordbank follows the wording of Title VII (26)

subparagraph (b) CRR (EBA/GL/2014/14) of the broader descriptions

of the original English version.

Means of disclosures The Disclosure Report is published on HSH Nordbank's website

under “Investor Relations” in accordance with Article 434 (1) CRR.

The timing and medium of publication are notified to the supervisory

authorities.

INTRODUCTION AND GENERAL PRINCIPLES DISCLOSURE REPORT 7

Further source of disclosure Provided that equivalent disclosures are made under other require-

ments, these may be deemed compliant in accordance with Arti-

cle 434 (2) CRR. HSH Nordbank uses this provision for the represen-

tations listed below:

– Under Article 435 (1) institutions shall disclose their risk manage-

ment objectives and policies for each separate category of risk, in-

cluding counterparty default risk, market risk incl. interest rate risk

and operational risk. Other material risk types of HSH Nordbank

include transformation risk and reputation risk. These are disclosed

as part of the information provided in the Group Management Re-

port (Risk Report) in HSH Nordbank's Annual Report. The infor-

mation flow to the management body regarding risk issues is de-

scribed there in accordance with Article 435 (2) subparagraph (e)

CRR.

– The number of management or supervisory posts held by members

of the management body as well as the recruitment policy and poli-

cy on diversity for the selection of members of the management

body in accordance with Article 435 (2) subparagraphs (a) to (c) is

disclosed as part of the information provided in the Corporate

Governance report in HSH Nordbank's Annual Report. Infor-

mation regarding the Risk Committee in accordance with Arti-

cle 435 (2) subparagraph (d) CRR can be found in the Supervisory

Board Report in HSH Nordbank's Annual Report.

– Under Article 438 subparagraph (a) CRR an institution shall dis-

close a qualitative summary of the approach used to assess the ade-

quacy of its internal (economic) capital to support current and fu-

ture activities. The internal procedures used to assess capital ade-

quacy in relation to the risk profile as well as the strategy for main-

taining the equity capital level must therefore be described. Details

regarding this are set out in the Group Management Report (Risk

Report) in HSH Nordbank's Annual Report.

– A description of the approaches and methods adopted for deter-

mining specific and general credit risk adjustments in accordance

with Article 442 subparagraph (b) CRR takes place in the infor-

mation provided in the Group Management Report and Group Fi-

nancial Statements (Group notes, Note 8 "Accounting policies") in

HSH Nordbank's Annual Report.

– The requirements laid down in Article 450 CRR in conjunction

with Section 16 (1) of the German Ordinance on the Remuneration

of Financial Institutions (Institutsvergütungsverordnung –

InstitutsVergV) are met by HSH Nordbank by means of a separate

remuneration report. This report will be published on

HSH Nordbank's website at the same place as the disclosure report

under “Investor Relations”

– Additional information under section 26a of the german banking

act

The Group's legal and organisational structure as well as principles of

proper management are presented in the Group Management Report

(Basis of the Group and Risk Report) in HSH Nordbank's Annual

Report in accordance with Section 26a (1) Sentence 1 KWG.

Additional disclosure requirements under Section 26a (1) Sentence 2

KWG are set out as an appendix to the Group Financial Statements

('Country by country reporting') in HSH Nordbank's Annual Report.

Non-relevance and negative declarations In principle, HSH Nordbank discloses all information laid down in

Part Eight Titles II and III CRR. However, some of the requirements

are irrelevant for the Bank and accordingly not disclosed. For ensuring

unambiguousness of disclosure, HSH Nordbank explicitly makes a

negative declaration for the information listed below:

– HSH Nordbank does not make use of Articles 7 and 9 CRR. There-

fore, disclosure is not made in accordance with Article 436 subpar-

agraph (e) CRR.

– The capital ratios are determined solely on the basis of the princi-

ples laid down in the CRR. Accordingly, an explanation according

to Article 437 subparagraph (f) CRR is not provided.

– Equity holdings, to which grandfathering provisions apply regard-

ing capital requirements, are not held in HSH Nordbank's portfolio.

Therefore, disclosure in accordance with Article 438 subparagraph

(d) (iv) CRR does not apply.

– HSH Nordbank uses the mark-to-market method for determining

counterparty credit risk in accordance with Article 274 CRR.

Methods based on internal models pursuant to Articles 276 to 282

CRR are not used. Accordingly, no information according to Arti-

cle 439 subparagraphs (c) and (i) CRR regarding correlation risk

pursuant to Article 291 CRR and/or the estimate for value α pursu-

ant to Article 284 CRR is disclosed.

– Information pursuant to Article 441 CRR is not disclosed, as

HSH Nordbank was not classified as a bank of a global systemic

importance.

– HSH Nordbank does not hold any securitisation positions in the

trading book. For this reason, no information is provided on the

specific interest rate risk pursuant to Article 445 CRR and trading

book securitisation positions under Article 449 CRR.

– Hedging transactions for other retained re-securitisation and secu-

ritisation positions were not in place as at the reporting date and are

also not planned. No disclosure according to Article 449 subpara-

graph (g) CRR is therefore made.

– An internal measurement approach for securitisations pursuant to

Part Three Title II Chapter 5 (3) is currently not applied by

HSH Nordbank. Accordingly, no information is disclosed with re-

gard to Article 449 subparagraph (l) CRR.

– No securitised facilities subject to early amortisation treatment are

held in HSH Nordbank's portfolio. Therefore, no disclosure accord-

ing to Article 449 subparagraph (n) (iv) CRR is made.

– HSH Nordbank has not provided any support as defined in Arti-

cle 248 (1) CRR. A disclosure pursuant to Article 449 (r) is there-

fore not made.

– HSH Nordbank only uses own estimates of the LGD and conver-

sion factors for exposures to central governments, central banks,

institutions and corporates. Accordingly, separate disclosure pursu-

ant to Article 452 subparagraph (d) CRR and Article 452 subpara-

8 HSH NORDBANK 2016

graph (j) (ii) CRR is not made for exposures, to which own esti-

mates of the above-mentioned parameters are not applied.

– HSH Nordbank only uses the Standardised Approach for credit risk

for the retail exposure class. As a result, no information pursuant to

Article 452 subparagraph (f) CRR is disclosed.

– HSH Nordbank does not use Advanced Measurement Approaches

for the calculation of capital requirements for operational risk. In-

formation pursuant to Article 454 CRR is therefore not presented.

– Information is not disclosed under Article 455 CRR, as an internal

market risk model is not used.

OWN FUNDS AND CAPITAL REQUIREMENTS DISCLOSURE REPORT 9

2.1. OWN FUNDS

2.1.1. STRUCTURE OF OWN FUNDS For disclosures relating to own funds of the sub-group and the hold-

ing pursuant to Article 437 (1) subparagraphs (a), (b), (d) and (e) CRR

HSH Nordbank follows the Commission Implementing Regulation

(EU) No. 1423/2013 of 20 December 2013 laying down implementing

technical standards with regard to disclosure of capital requirements

for institutions according to CRR.

Disclosure of the nature and amounts of the specific components of own funds during the transitional period The template for the disclosure of own funds during the transitional

period contained in Annex VI of the Commission Implementing

Regulation (EU) No. 1423/2013 will be used until 31 December 2017

for disclosures pursuant to Article 437 (1) subparagraphs (d) and (e)

CRR. Full disclosure of this information is made in Table 62 (Appen-

dix, Section 9.2). In addition, the own funds structure as well as regu-

latory adjustments and capital ratios are shown in Table 1 and Table 2

in aggregated form.

The core capital ratio significantly improved as at 31 December 2016

and remains on a solid level of 13.9 %. The decrease of CET1 in con-

trast to the previous year results primarily from the increase of expo-

sure amount which qualify for a RW of 1250% (see line 20a of the

above mentioned Table 62 and Chapter 4. Securitisations).

The reduction of the AT1 results predominately from the application

of transitional provisions pursuant to Article 484 (4) CRR in connec-

tion with Article 486 (3) and (5) CRR as well as § 31 SolvV. Due to the

defined maximum in these Articles the chargeable silent partnerships

decrease.

[TAB. 1] STRUCTURE OF OWN FUNDS AND REGULATORY ADJUSTMENTS OF THE SUB-GROUP IN € M

2016 2015

Common Equity Tier 1 capital (CET1) before regulatory adjustments 4,882 4,800

Common Equity Tier 1 capital (CET1) 3,972 4,363

Additional Tier 1 capital (AT1) before regulatory adjustments 1,324 1,544

Additional Tier 1 capital (AT1) 1,319 1,535

Tier 1 capital (T1 = CET1 + AT1) 5,292 5,899

Tier 2 capital (T2) before regulatory adjustments 1,629 1,653

Tier 2 capital (T2) 1,629 1,653

Total capital (TC = T1 + T2) 6,921 7,551

Total regulatory adjustments to Tier 1 capital (CET1) – 910 – 436

Total regulatory adjustments to Additional Tier 1 capital (AT1)t – 5 – 9

Total regulatory adjustments to Tier 2 capital (T2) – –

[TAB. 2] CAPITAL RATIOS OF THE SUB-GROUP IN %

2016 2015

Common Equity Tier 1 capital (as a percentage of the total debt) 13.9 % 11.6%

Tier 1 capital (as a percentage of the total debt) 18.5 % 15.7%

Total capital ratio (as a percentage of the total debt) 24.2 % 20.1%

Full reconciliation of components of own funds with the audited financial statements A full reconciliation of components of own funds with the audited

financial statements pursuant to Article 437 (1) subparagraph (a) CRR

in conjunction with Article 2 of the Commission Implementing Regu-

lation (EU) no. 1423/2013 is shown in Table 63 (Appendix, Section

9.2).

The reconciliation is performed in three steps. In the first step, the

consolidation group under commercial law is reconciled to the regula-

tory consolidation group as at 31 December 2015. The components of

own funds of the consolidation group under commercial law corre-

spond to the equity capital information originally published in

HSH Nordbank's Annual Report as at 31 December 2015, as they

form the basis for the regulatory own funds. In the second step, the

components of own funds are extended and effects arising during the

year are included. Lastly, the components of own funds are assigned to

the own funds items in the regulatory report of the sub-group as at 31

December 2016.

2. OWN FUNDS AND CAPITAL REQUIREMENTS

10 HSH NORDBANK 2016

A reconciliation of the changes in reported equity between 31 De-

cember 2015 and 31 December 2016 is not provided, as it is disclosed

in detail in the Group Financial Statements (Group explanatory notes,

Note 50 "Equity") in HSH Nordbank's Annual Report as at 31 De-

cember 2016.

Description of the main features of own funds instruments issued The main features of the Common Equity Tier 1, Additional Tier 1

and Tier 2 capital instruments issued by HSH Nordbank are described

in Table 66 (Appendix, Section 9.4) in accordance with Article 437 (1)

subparagraph (b) CRR in conjunction with Article 3 of the Commis-

sion Implementing Regulation (EU) no. 1423/2013.

Transitional provisions for disclosure of own funds Common Equity Tier 1 capital and Tier 1 capital exceed the require-

ments laid down in Article 92 CRR by € 2,686 million (previous year:

€ 2,670 million) and € 3,577 million (previous year: € 3,642 million),

respectively.

Pursuant to Article 492 (4) CRR € 1,324 million (previous year:

€ 1,544 million) and € 53 million (previous year: € 62 million) are

credited in the transitional period as Additional Tier 1 capital and Tier

2 capital, respectively, by virtue of applying Article 484 CRR.

2.1.2. TERMS AND CONDITIONS OF OWN FUNDS INSTRUMENTS

Pursuant to Article 437 (1) subparagraph (c) CRR the regulatory own

funds instruments of HSH Nordbank as at the reporting date mainly

comprise the following:

– The subscribed capital amounts to € 3,018 million.

– The reserves of € 1,804 million consist of capital reserves (€

175 million), other retained earnings (€ 533 million) as well as

Group retained earnings (€ 1,096 million).

– Silent partner contributions of € 1,324 million are credited to Addi-

tional Tier 1 capital during the transitional periods in accordance

with Article 484 (4) CRR in conjunction with Article 486 (3) and (5)

CRR and Section 31 SolvV, taking account of the ceilings men-

tioned therein. Moreover, € 506 million of these silent participations

can be considered as Additional Tier 2 capital due to the

exceedance of the previously named ceilings. Some of these silent

partner contributions thereby meet the requirements of Article 63

CRR; the remaining silent participations are subject to the transi-

tional provisions pursuant to Article 487 CRR. For the most part,

the silent participations are for an indefinite period and cannot be

terminated by the investors. HSH Nordbank regularly has the right

to terminate after the expiry of an agreed minimum period of time

that is subject to the approval of the ECB.

– The Tier 2 capital amounts to € 1,629 million and comprises long-

term subordinated liabilities (€ 1,050 million), the above mentioned

contribution to the silent participations of € 506 million and a con-

siderable eligible portion of the loan loss provision excess for IRBA

positions in accordance with Article 62 (1) subparagraph (d) CRR

in the amount of € 62 million.

– Subordinated liabilities were issued in the form of loan notes, regis-

tered or bearer bonds and are denominated in euro, US dollar and

Japanese yen. The registered bond issued in Japanese yen meets the

conditions laid down in Article 484 (5) CRR in conjunction with

Article 486 (4) and (5) CRR as well as Section 31 SolvV and is

thereby eligible for inclusion as Tier 2 capital during the transitional

period taking account of the ceilings specified therein. The original

maturities range from ten to 40 years. The interest rates payable

range between 0.02 % p. a. and 6.5 % p. a.

More detailed information on the terms and conditions on the alloca-

ble components of own funds are set out in Table 3.


[TAB. 3] TERMS AND CONDITIONS OF OWN FUNDS INSTRUMENTS

Allocable total amount in € m

Remaining maturity < 5 years in € m

Remaining maturity >= 5 years in € m

Avg. remaining maturity in

years Avg. interest

rate in %1)

of which

CET1 of which AT1 of which T2

Ordinary shares of HSH Nordbank AG 3,018 - - - - - -

Allocable share capital of other entities included in the regulatory scope of consolidation – - - - - - -

Silent participations with limited allocability, subject to transitional rules, indefinite and without payment triggers - 1,300 495 - - - -

Silent participations with limited allocability, subject to transitional rules, limited or with payment triggers - 24 11 - 35 6 -

Profit participation certificates - - - - - - -

Permanently eligible subordinated liabilities - - 1,050 105 945 16 1.2

Subordinated liabilities subject to a transitional rule - - 11 11 - 1 6.4

1) Information on interest rates relates to interest payments actually made

2.1.3. STRUCTURE OF OWN FUNDS The holding fulfills the same regulatory requirements as set out for the

sub-group in chapter 2.1.1. As the holding-structure was established

in 2016, no figures for the previous year are shown in the following

tables.

The common equity tier 1 capital – in comparison to the sub-group –

is much lower. This results from consolidation-effects and the consid-

eration of guarantee obligations of the HSH Beteiligungs Management

GmbH on the holding level as a consequence of the EU decision.

The principal owner of HSH Nordbank AG as at the 2016 year end is

HSH Beteiligungs Management GmbH with a shareholding of 94.9 %.

Private investors advised by J.C. Flowers & Co. LLC also have a share-

holding of 5.1 %. Pursuant to CRR, this is a minority shareholding of

private investors which can only partly be recognized in the common

equity tier 1 capital on holding-level. In addition due to the minority

shareholding own funds of the additional tier 1 capital and the tier 2

capital are just partly eligible. Therefore, these parts of own funds are

significantly reduced.

The structure of own funds and regulatory adjustments as well as

capital ratios are shown in Table 4 and 5. More detailed information is

set out in Table 64 (chapter 9.3).


[TAB. 4] STRUCTURE OF OWN FUNDS AND REGULATORY ADJUSTMENTS OF THE HOLDING IN € M

2016 2015

Common Equity Tier 1 capital (CET1) before regulatory adjustments 2,882 –

Common Equity Tier 1 capital (CET1) 1,804 –

Additional Tier 1 capital (AT1) before regulatory adjustments 888 –

Additional Tier 1 capital (AT1) 883 –

Tier 1 capital (T1 = CET1 + AT1) 2,687 –

Tier 2 capital (T2) before regulatory adjustments 1,070 –

Tier 2 capital (T2) 1,070 –

Total capital (TC = T1 + T2) 3,757 –

Total regulatory adjustments to Tier 1 capital (CET1) – 1,078 –

Total regulatory adjustments to Additional Tier 1 capital (AT1)t – 6 –

Total regulatory adjustments to Tier 2 capital (T2) – –

[TAB. 5] CAPITAL RATIOS OF THE HOLDING IN %

2016 2015

Common Equity Tier 1 capital (as a percentage of the total debt) 6.5 % –

Tier 1 capital (as a percentage of the total debt) 9.7 % –

Total capital ratio (as a percentage of the total debt) 13.6 % –

Full reconciliation of components of own funds with the audited financial statements A full reconciliation of components of own funds with the audited

financial statements pursuant to Article 437 (1) subparagraph (a) CRR

in conjunction with Article 2 of the Commission Implementing Regu-

lation (EU) no. 1423/2013 is shown in Table 65 (Appendix, Section

9.3).

The reconciliation is performed in three steps. In the first step, the

consolidation group under commercial law is reconciled to the regula-

tory consolidation group as at 31 December 2016, as there is no data

for the previous year. In the second step, the components of own

funds are extended and effects arising during the year are included.

Lastly, the components of own funds are assigned to the own funds

items in the regulatory report of the holding as at 31 December 2016.

Description of the main features of own funds instruments issued Beside the ordinary share capital the holding has no own funds in-

struments issued. The capital instruments issued by HSH Nordbank

(sub-group) are described in Table 66 (Appendix, Section 9.4).

Transitional provisions for disclosure of own funds Common Equity Tier 1 capital exceeds the requirements laid down in

Article 92 CRR by € 558 million and Tier 1 capital by €1,026 million.

Pursuant to Article 492 (3) subparagraph (b) CRR € 51 million,

€ 290 million and € 373 million are credited in the transitional period

as Common Equity Tier 1 capital, Additional Tier 1 capital and Tier 2

capital, respectively, by virtue of applying Article 480 CRR.

2.1.4. TERMS AND CONDITIONS OF OWN FUNDS INSTRUMENTS

Pursuant to Article 437 (1) subparagraph (c) CRR the regulatory own

funds instruments of the holding as at the reporting date mainly

comprise the following:

– The subscribed capital amounts to € 0,1 million.

– The reserves of € 2,672 million consist of capital reserves (€

71 million), other retained earnings (€ 663 million) as well as

Group retained earnings (€ 1,938 million).

– The minority shareholding as part of the CET1 capital amounts to €

176 million.

– The eligible AT1 capital during the transitional period (see Section

2.1.2) adds up to € 888 million.

– The T2 capital amounts to € 1070 million.


2.2. CAPITAL REQUIREMENTS

2.2.1. CAPITAL REQUIREMENTS OF THE SUB-GROUP The capital requirements relevant for HSH Nordbank pursuant to

Article 438 subparagraphs (c) to (f) CRR are explained below and

disclosed in Table 6.

Credit risk Following approval by the competent authorities the risk parameters

required to determine the risk weight are generally calculated inter-

nally by HSH Nordbank (see Section 3.5.1). Consequently, the risk-

weighted exposure amounts for credit risk are generally calculated

using the IRB approach in accordance with Part Three Title II Chapter

3 CRR.

However, as part of the temporary or permanent partial use, the

Standardised Approach for credit risk pursuant to Part Three Title II

Chapter 2 CRR is applied to individual exposures and companies to

be consolidated. For this reason, information on capital requirements

for credit risk is provided in accordance with both the advanced IRB

Approach and Standardised Approach for credit risk, broken down in

each case into separate exposure classes by the approach applied.

Furthermore, capital requirements determined since 1 January 2014

for risks arising from contributions to the default fund of a central

counterparty (CCP) are disclosed pursuant to Articles 307 to 309 CRR.

In the case of equity holdings under the IRB approach,

HSH Nordbank determines the capital requirements using the PD-

LGD approach and the simple risk weight method. In addition, signif-

icant investments in financial sector entities pursuant to Article 48

CRR have been separately backed by equity since 1 January 2014,

provided that these are not deducted from own funds. Furthermore,

the equity holdings already held prior to 1 January 2008 and conse-

quently “grandfathered” (portfolio protection) according to Arti-

cle 495 (1) CRR are excluded from the Advanced IRB Approach until

31 December 2017 and are treated in accordance with the rules appli-

cable to the CRSA.

In total, the capital requirements for credit risk decreased as at the

reporting date compared to the previous year – from € 2,139 million

to € 1,871 million. The decrease can mainly be referred to the sale of a

non-performing shipping loan portfolio, mainly denominated in US $,

to the hsh portfoliomanagement AöR as at 30 June 2016, the Horizon

securitisation transaction (see Section 2.3.3) as well as an ongoing

wind-down strategy for portfolios held in the Non-core bank.

In contrary, the development of main risk-paramaters especially in the

shipping business caused negative impacts.

Further details on business performance are presented in the Group

Management Report (Economic report, Business performance) in


Market risk HSH Nordbank uses standardised methods for determining capital

requirements for market risk in accordance with Part Three Title IV

Chapters 2 to 4 CRR.

The significant reduction of capital requirement for market risk from

€ 678 million 2015 to € 255 million as at 31 December 2016 results

from effects explained under Credit risk as well as a changed consid-

eration of foreign currency risk in the sunrise portfolio (see Section

5.1).

Operational risk HSH Nordbank applies the Standardised Approach pursuant to Arti-

cle 317 CRR for purposes of determining the capital requirement for

operational risk.

In total, there is a capital requirement for the sub-group of € 135

million (see Section 5.2).

Overall capital requirements In addition to credit risk, market risk and operational risk

HSH Nordbank has also backed the credit valuation adjustment risk

(CVA risk) with own funds since 1 January 2014 in accordance with

Part Three Title VI CRR. The capital requirements for this risk

amount to € 25 million. There were no capital requirements for set-

tlement risk pursuant to Part 3 Title VI CRR as at the reporting date.

This results in total capital requirements of € 2,286 million as of the

reporting date.


[TAB. 6] CAPITAL REQUIREMENTS OF THE SUB-GROUP IN € M

2016 2015

Credit risk

Standardised Approach (CRSA)

Central governments or central banks – –

Regional governments or local authorities 0 0

Public sector entities 1 3

Multilateral development banks – –

International organisations – –

Institutions 3 3

Corporates 21 35

Retail exposures 1 2

Exposures secured by mortgages on immovable property 0 0

Exposures in default 15 8

Exposures associated with particularly high risk 0 2

Covered bonds – –

Securitisations 7 5

Exposures to institutions and corporates with a short-term credit assessment – –

Shares in collective investment undertakings – –

Equity holdings based on the continued use of the old methodology/grandfathering (CRSA) 12 20

Equity holdings excluded from the IRBA on a permanent basis or for a limited period (CRSA) – –

Other items 0 0

Advanced Internal Rating Based Approach (IRBA)

Central governments and central banks 32 36

Institutions 73 116

Corporates 1,095 1,227

Retail exposures – –

Significant equity holdings in a financial sector entity (250%) – –

Equity holdings using the simple risk weight approach 17 13

of which: private equity exposures in sufficiently diversified portfolio (190%) – –

of which: Exchange traded equity exposures (290%) 1 –

of which: Other equity exposures (370%) 16 13

Equity holdings using the PD-LGD approach (IRBA) 10 11

Equity holdings using internal models – –

Securitisations 478 542

Other non credit-obligation assets 106 116

Risk arising from default fund contributions to a central counterparty 0 0

Subtotal capital requirements for credit risks 1,871 2,139

Market risk in accordance with the Standardised Approach 255 678

Operational risk in accordance with the Standardised Approach 135 157

Credit valuation adjustment risk 25 35

Settlement risk – –

Total 2,286 3,009

2.2.2. CAPITAL REQUIREMENTS OF THE HOLDING The capital requirements relevant for HSH Nordbank pursuant to

Article 438 subparagraphs (c) to (f) CRR are explained below and

disclosed in Table 7.

Credit risk The lower RWA for credit risk in the holding results from lower de-

ferred taxes. The lower own funds implicate a lower threshold for the

deduction of deferred taxes. This leads to a higher amount to be

deducted directly from the CET1 and a lower RWA requirement

(other assets without credit obligations).


In total, the capital requirements for credit risk add up to € 1,830

million.

Market risk The capital requirements for market risk are identical for holding and

sub-group and amount to € 255 million (see Section 5.1).

Operational risk HSH Nordbank applies the Standardised Approach pursuant to Arti-

cle 317 CRR for purposes of determining the capital requirement for

operational risk.

In total, there is a capital requirement for the holding of € 317 million

(see Section 5.2).

Overall capital requirements The CVA risk amounts to € 25 million. There were no capital re-

quirements for settlement risk pursuant to Part 3 Title VI CRR as at

the reporting date.

This results in total capital requirements of € 2,214 million as of the

reporting date. Since the holding was set up in 2016 no data exists for

2015.

[TAB. 7] CAPITAL REQUIREMENTS OF THE HOLDING IN € M

2016 2015

Credit risk

Standardised Approach (CRSA)

Central governments or central banks – –

Regional governments or local authorities 0 –

Public sector entities 1 –

Multilateral development banks – –

International organisations – –

Institutions 3 –

Corporates 21 –

Retail exposures 1 –

Exposures secured by mortgages on immovable property 0 –

Exposures in default 15 –

Exposures associated with particularly high risk 0 –

Covered bonds – –

Securitisations 7 –

Exposures to institutions and corporates with a short-term credit assessment – –

Shares in collective investment undertakings – –

Equity holdings based on the continued use of the old methodology/grandfathering (CRSA) 12 –

Equity holdings excluded from the IRBA on a permanent basis or for a limited period (CRSA) – –

Other items 0 –


Central governments and central banks 32 –

Institutions 73 –

Corporates 1,095 –

Retail exposures – –

Equity holdings (IRBA) 27 –

Securitisations 478 –

Other non credit-obligation assets 65 –

Risk arising from default fund contributions to a central counterparty 0 –

Subtotal capital requirements for credit risks 1,830 –

Market risk in accordance with the Standardised Approach 255 –

Operational risk in accordance with the Standardised Approach 104 –

Credit valuation adjustment risk 25 –


Total 2,214 –


2.3. PROVISION OF A GUARANTEE FACILITY

2.3.1. SECOND LOSS GUARANTEE OF HSH FINANZFONDS AÖR

Basics of the effect of the second loss guarantee On 2 June 2009, the Federal State of Schleswig Holstein and the Free

and Hanseatic City of Hamburg granted HSH Nordbank AG a guar-

antee facility in the amount of € 10 billion via the HSH Finanzfonds

AöR as the guarantor in order to secure the future of the Bank. This

agreement on the provision of a guarantee facility as well as a related

recapitalization of the Bank are subject to approval by the European

Commission in accordance with the law regarding state aid. The EU

Commission concluded these state aid proceedings at the end of

September 2011 and entered into an agreement on commitments with

all the parties involved and imposed conditions. The conditions in-

clude a prohibition on the payment of dividends until and including

the financial year 2014, among other things. The guarantee of the

federal states is split into two partial guarantees for financial reporting

purposes. Partial guarantee One is recognized in the Group financial

statements as a financial guarantee contract in accordance with IAS

39.9. Partial guarantee Two is recognized as a credit derivative.

The guarantor guarantees actual rating-related defaults on financial

instruments selected based on certain defined criteria that form part

of the assets of HSH Nordbank AG.

The amount of default on a specific commitment is determined by the

amount outstanding, taking into account the specific loan loss provi-

sion existing as at 31 March 2009. The amount outstanding is at the

most the amount repayable as at 31 March 2009, plus all interest owed

and other ancillary payments. Losses may only be allocated under the

guarantee once the guarantee case has been examined and approved

by the guarantor.

The guarantee expires when it is returned to the guarantor after the

last reference commitment in the hedged portfolio has been met

irrevocably and in full or has resulted in a guarantee case for the full

amount. Since 2014 it is possible for HSH Nordbank AG to terminate

the guarantee in full.

2011 the guarantee was reduced by a total of € 3 billion to € 7 billion.

The guarantee facility was replenished as at 30 June 2013 by € 3 billion

to the original amount of € 10 billion. The guarantee agreement was

adjusted by way of an appropriate amendment agreement. Under this

agreement the fee provisions for the replenished guarantee remain

essentially unchanged. A one-off payment of € 275 million became

payable, however, for the re-increased amount on the coming into

force of the amendment agreement. Through this the guarantor is put

in a position as if the guarantee had never been reduced. The one-off

payment represents a fee for a time-related service and is amortized

over the period of the expected benefit. In 2016, € 22 million was

recognized through profit or loss in the Expenses for government

guarantees line item (previous year: € 69 million).

The amendment agreement also included new stipulations concern-

ing the capital protection clause which took effect on 1 January 2014.

Insofar as the obligation to pay the additional premium would have

the effect of decreasing the Tier 1 capital ratio (both from an ex post

and ex ante perspective) excluding hybrid capital (common equity

ratio) of HSH Nordbank to below 10 % (minimum common equity

ratio) or of increasing an already existing shortfall, the guarantor is

obliged to waive the portion of the entitlement that would result in the

ratio falling below the minimum common equity ratio against the

issue of a debtor warrant (so-called capital protection clause).

Since January 2014, HSH Nordbank calculates the supervisory capital

ratio on the basis of IFRS data (until 31 December 2013 HGB data

were used). To cover a scenario in which the common equity ratio fell

below 10 %, a waiver by the guarantor HSH Finanzfonds AöR was

recognized to income from the additional premium. However, under

the new provisions of the capital protection clause, a debtor warrant

was no longer issued immediately upon declaration of the debt waiver

but was subject to certain conditions. Only when these conditions are

met did the obligation from the debtor warrant arise.

In exchange for the guarantee HSH Nordbank AG paid a contractual-

ly agreed base premium of 4 % p.a. on the guarantee volume outstand-

ing at the time up until 31 December 2015. Draw downs did not

reduce the calculation basis. The recurring base premium payable was

recognized through profit or loss on an accrual basis in the Expenses

for government guarantees line item.

As long as and insofar as a cash drawdown of the guarantee is not yet

made through the invoicing of losses that in total exceed the first loss

piece of € 3.2 billion to be borne by the Bank, a claim for compensa-

tion against HSH Finanzfonds AöR cannot be recognized. Against

this background the hedging effect of partial guarantee One recog-

nized in the balance sheet is accounted for on a net basis. The Bank

initially determines specific and general loan loss provisions without

taking the hedging effect of the second loss guarantee into account

and then records the balance sheet hedging effect through the use of a

compensation item that reduces the loan loss provision amount dis-

closed on the balance sheet accordingly. The specific and general loan

loss provisions recognized are not changed by the accounting applied

to the hedging effect. The hedging effect of partial guarantee Two is

not disclosed separately as a compensation item in Loan loss provi-

sions but in a separate line item in the statement of financial position

and the statement of income within the framework of accounting for

the credit derivative at fair value.

The compensation item was reduced by the additional premium

imposed by the EU Commission in the amount of 3.85 % p. a. This

additional premium was only to be paid to HSH Finanzfonds AöR in

the case of an actual drawdown of the guarantee. The additional


premium was payable at the latest until 31 December 2019 and was to

cease to apply retroactively in the event that the guarantee was not

drawn down. The current hedging effect of the second loss guarantee

was used as the measurement basis for calculating the additional

premium (ex post). The anticipated total loss payable by the guarantor

was the measurement basis for the calculation of the additional pre-

mium (ex ante).

Insofar as it was more likely than not that the guarantee would be

drawn down, the premiums to be paid in the future also needed to be

recognized (on a present value basis) as loan collateral expense, as,

according to the guarantee agreement, draw downs did not reduce the

basis for calculating the guarantee premiums. The future premiums

resulted in a reduction of the compensation item as does the addition-

al premium. The present value calculation gave rise to an interest

effect, which was disclosed under Net interest income.

If, during the restructuring and workout program, measures con-

sistent with the guarantee are implemented in respect of hedged

commitments that conflict with recognition of the hedging instru-

ment in the financial statements as a financial guarantee under IAS

39.9, commitments may be transferred to the partial guarantee Two

under the framework agreement that falls under the definition of a

credit derivative under IFRS, subject to approval from the trustee

appointed by the guarantor. The maximum guarantee amount is not

altered by the revival of partial guarantee Two and the respective

partial amounts offset each other.

Decision made by the European Commission in the EU state aid proceedings On 2 May 2016 the EU Commission issued a formal decision in the

current EU state aid proceedings and thereby approved the replen-

ishment of the second loss guarantee provided by the federal states

from € 7.0 billion to € 10.0 billion. The decision is based on a cata-

logue of conditions and commitments provided by the Federal Re-

public of Germany to the EU Commission. Based on this catalogue,

HSH Nordbank has to provide the holding with liquidity in the

amount of

€ 50 million to ensure its operations and make a one-off payment of

€ 210 million to the holding company.

The holding company was set up as HSH Beteiligungs Management

GmbH on 20 May 2016 and was entered in commercial register B of

the Local Court (Amtsgericht) of Hamburg on 13 June 2016. The

abovementioned payments were made on 30 June 2016. They had

already been included in the compensation item “Remaining payment

obligations for guarantee premiums” as at 31 December 2015, mean-

ing that they were utilized in the financial year.

In exchange for the guarantee HSH Nordbank AG has been paying a

contractually agreed base premium of 2.2 % p.a. on the guarantee

volume that has not yet been drawn down since 1 January 2016. The

recurring base premium payable is recognized through profit or loss

on an accrual basis in the Expenses for government guarantees line

item. The guarantee premium expense that is attributable to partial

guarantee Two (credit derivative) is taken into account when calculat-

ing the market value of the credit derivative. The other fee compo-

nents of the guarantee (base premium on the utilized portion of the

guarantee, base premium of 1.8 % p.a. on the nominal amount of the

guarantee, additional premium) were assumed by the newly estab-

lished holding company.

Due to a binding statement of the Free and Hanseatic City of Ham-

burg and the Federal State of Schleswig-Holstein vis-à-vis

HSH Nordbank AG already existing as at the reporting date

31 December 2015 with regard to the assumption of guarantee obliga-

tions (additional premium and parts of the base premium), it had

become unlikely that future premium payments excluding those

payments still to be expected after the decision of the EU Commission

(one-off payment of € 210 million and provision of liquidity of €

50 million to the holding company) would be made by

HSH Nordbank. As a result, the obligations recognized in the com-

pensation item in the past, as well as the debt waiver, had already been

derecognized through profit or loss as at 31 December 2015.

Accounting impact of the second loss guarantee in the 2016 financial year The hedging effect of the financial guarantee granted by the Free and

Hanseatic City of Hamburg and the Federal State of Schleswig-

Holstein via HSH Finanzfonds AöR, which was reported on the face

of the balance sheet for the first time as at 31 December 2010,

amounted to € 7,854 million as at 31 December 2016 (previous year:

€ 7,422 million).

As at 31 December 2016 a compensation item disclosed on the bal-

ance sheet of € 7,854 million (31 December 2015: € 7,162 million)

results from the hedging effect of partial guarantee One which is offset

under the Loan loss provisions item. An amount of € 2,284 million

(previous year: € 3,077 million) has been taken into account, with a

positive effect, under loan loss provisions in the statement of income.

The compensation item on the balance sheet includes compensation

claims of HSH Nordbank AG vis-à-vis the guarantor in the total

amount of € 409 million, as the settled payment defaults under the

guarantee exceeded the first loss piece to be borne by the Bank of € 3.2

billion as at 31 December 2016. This means that HSH Nordbank AG

now has a contractual entitlement to loss compensation with regard to

the main claims in default and the interest accrued. The payments

already made amount to € 1.9 billion as at 31 December 2016.

The partial guarantee Two is disclosed as a credit derivative under the

“Credit derivative under the second loss guarantee” line item. Changes

in the measurement of the credit derivative at fair value are disclosed

under the “Hedging effect of the credit derivative second loss guaran-

tee” line item in the statement of income. The fair value of the partial

guarantee Two was € 199 million as at 31 December 2016 (previous


year: € 663 million). Expense of € – 475 million (previous year: in-

come of € 658 million) has been recognized under the “Hedging effect

of credit derivative under the second loss guarantee” line item in the

statement of income.

The drop in the fair value of the credit derivative as at

31 December 2016 is due to the sale of the loan receivable portfolio

that is secured under partial guarantee Two to hsh

portfoliomanagement AöR. The reduction in the positive market

value of the credit derivative resulting from the settlement of losses

associated with the transactions hedged using the second loss guaran-

tee and the associated expense entry under the “Hedging effect of

credit derivative under the second loss guarantee” line item in the

statement of income is offset by the capitalization, affecting income, of

a compensatory claim under partial guarantee Two vis-à-vis the guar-

antor in the compensation item in the balance sheet in the amount of

€ 32 million, as well as payments already made in the amount of €

740 million (previous year € 0 million).

In addition, transactions had to be reallocated from partial guarantee

One to partial guarantee Two because they no longer met the re-

quirements for recognition under the financial guarantee.

Taking into account the compensation payments of HSH Finanzfonds

AöR already received for credit losses in the hedged portfolio of

€ 1,852 million (previous year: € 0 million) and the hedging effect

resulting from the credit derivative measured on the reporting date

(protection leg) in the amount of € 204 million, the utilization of the

guarantee as at 31 December 2016 comes to € 9,911 million (previous

year: € 7,422 million). Since the 2009 reporting year the Bank has

recorded premium expense totaling € 3,706 million for the provision

of the second loss guarantee. € 3,659 million has been paid to date, of

which € 2,624 million is attributable to the current base premium and

€ 1,035 million to one-off payments (thereof € 260 million to HSH

Beteiligungs Management GmbH).

2.3.2. EFFECTS OF THE CAPITAL MEASURES ON THE CAPITAL REQUIREMENTS

HSH Nordbank has classified the guarantee facility issued by hsh

finanzfonds AöR as eligible unfunded credit protection in accordance

with Article 213 CRR in conjunction with Article 215 CRR. As it

possesses the necessary characteristics, such as for example division

into tranches and ranking (waterfall), it is treated as a securitized

position under the Advanced IRB Approach. The risk weight of the

senior tranche is determined using the Supervisory Formula Ap-

proach in accordance with Article 262 CRR.

This secondary, loss-based, risk-shielding function of the guarantee

facility is designated within HSH Nordbank as Sunrise or the Sunrise

transaction. This risk shield is structured as a synthetic securitisation

transaction which is recognized by the supervisory authorities so that

assets remain on HSH Nordbank's balance sheet.

Due to its structure, a corresponding easing of the strain on capital

requirements may be achieved through the hsh finanzfonds AöR

guarantee facility starting on 30 June 2009.

Based on the securitisation regulations in CRR, there is a choice for

the first loss piece between a capital deduction and an allowance with

a risk weight of 1,250 %. At the reporting date the first loss piece was

already fully utilized, thus neither option could be used.

The risk weight for the second loss piece is 0 %. The risk weight for the

senior tranche is 24 % at the reporting date.

Since 31 December 2016 HSH Nordbank uses the option pursuant to

Article 266 (3) subparagraph (c) to split the senior tranche into two

(virtual) tranches of whom a sub-tranche, receiving a risk weight of

1.250 %, is deducted from regulatory capital pursuant to Article 36 (1)

subparagraph (k). The other tranche receives the risk weight of the

senior tranche.

Pursuant to Article 92 CRR HSH Nordbank determines capital re-

quirements taking the guarantee facility into account. Consequently,

disclosures made in this report generally reflect the effect of the guar-

antee. Exceptions are explicitly stated.

Additional information on the features of the Sunrise transaction (e.g.

treatment of currency mismatches) is set out in Chapter 4.

DEFAULT RISK DISCLOSURE REPORT 19

Definition The default risk information is based on the sub-group. Main differ-

ence to the holding is lower RWA due to lower deferred taxes (see

Section 1.1.2). Therefore, a separate presentation of the holding is

expendable.

HSH Nordbank breaks down its default risk into credit, settlement,

country and equity holding risk.

In addition to the traditional credit risk, credit risk also includes

counterparty and issuer risk. The conventional credit risk is the risk of

complete or partial loss in the lending business as a result of deteriora-

tion in the counterparty’s credit standing. A counterparty default risk

exists in the case of derivatives and refers to the risk that a counterpar-

ty defaults during the term of a transaction and HSH Nordbank must

cover the shortfall for the residual term by means of a new contract on

the market at the price prevailing at that time which might be less

favourable. Issuer risk denotes the risk that a loss is incurred on a

financial transaction as a result of the default or deterioration in the

creditworthiness of the issuer.

Settlement risk consists of clearing risk and advance performance risk.

Clearing risk arises in the case of possible loss of value if delivery or

acceptance claims pertaining to a transaction that is already due, have

not been met by both parties. Advance performance risk arises where

HSH Nordbank has performed its contractual obligations but consid-

eration from the contracting party is still outstanding.

HSH Nordbank understands country risk as the risk that agreed

payments are not made or are only made in part or delayed due to

government-imposed restrictions on cross-border payments (transfer

risk). The risk is not related to the debtor’s credit rating.

The equity holding risk is the danger of financial loss due to the im-

pairment of equity holdings.

All elements of default risk referred to are taken into account within

the context of equity capital management. For risk concentrations and

equity holding risks additional management measures are in place.

Risk management objectives and policies The risk management objectives and policies for default risk pursuant

to Article 435 (1) CRR are set out in the information provided in the

Group Management Report (Risk Report) in HSH Nordbank’s An-

nual Report.

3.1. CREDIT RISK ADJUSTMENTS

3.1.1. TOTAL AMOUNT OF EXPOSURES The total amount of exposures held in HSH Nordbank's portfolio,

broken down into exposure classes, geographic areas, distribution of

the exposures by economic sectors and remaining maturities, is dis-

closed below in accordance with Article 442 subparagraphs (c) to (f).

CRSA exposure classes, which account for an immaterial proportion

of the total amount of exposures, are aggregated into a total CRSA

amount for the purposes of presenting information in accordance

with Article 442 subparagraphs (d) to (f) in Table 9 to Table 11. For

this purpose, HSH Nordbank defines a proportion of a maximum of 8 %

as immaterial. This corresponds to the regulatory ceiling for the per-

manent use of the Standardized Approach for credit risk (permanent

partial use).

The exposure values are calculated after the application of CCFs in

accordance with Article 111 (1) CRR and Article 166 to 168 CRR.

However, with respect to the requirements stipulated in Article 442

subparagraph (c) CRR, in Table 8 to Table 11 credit risk minimization

techniques are not included in the calculation. The credit equivalent

value is shown for derivative instruments. IRBA and CRSA exposure

values are combined. The breakdown does not include equity hold-

ings and securitizations. Securitizations are presented in Chapter 4

and equity holdings are presented in Section 3.4.

The total amount of exposures is € 53 billion as at the reporting date

(previous year: € 57 billion). The average amount calculated as the

arithmetic mean of the quarterly amounts is € 54 billion for the re-

porting period (previous year: € 59 billion).

The decrease of exposure values between 31 December 2015 and the

reporting date mainly results from the portfolio sold to the Länder

and the ongoing wind-down strategy in the Non-core bank.

3. DEFAULT RISK


[TAB. 8] EXPOSURE VALUES BY EXPOSURE CLASS IN € M

Exposure value

Reporting date

Avg. during the reporting period1)

2016 2015 2016 2015

Credit Risk Standardised Approach (CRSA)

Central governments or central banks 27 34 24 25

Regional governments or local authorities 0 0 0 0

Public sector entities 300 406 246 258

Multilateral developments banks – – – –

International organisations 226 285 242 266

Institutions 860 1,558 746 1,893

Corporates 234 420 305 464

Retail exposures 9 31 24 34

Exposures secured by mortgages on immovable property 7 14 12 18

Exposures in default 127 77 98 77

Exposures associated with particularly high risk 3 16 11 16

Covered bonds – – – –

Exposures to institutions and corporates with a short-term credit assessment – – – –

Shares in collective investment undertakings – – – 9

Other items 0 0 0 0


Central governments and central banks 15,586 15,420 15,054 16,902

Institutions 5,807 6,957 6,359 7,965

Corporates 29,099 31,002 30,726 30,888

Other non credit-obligation assets 353 386 459 539

Total 52,638 56,606 54,306 59,354

1) Arithmetic mean of the quarterly amounts

[TAB. 9] EXPOSURE VALUES BY GEOGRAPHICAL AREAS IN € M

CRSA IRBA

Total

Central governments/ central banks Institutions Corporates

Other non-credit-obligation assets

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

Germany 1,134 2,032 14,202 13,743 2,692 3,082 17,010 18,513 178 206

Western Europe (without Germany) 377 456 798 797 3,068 3,722 8,673 8,499 – –

North America 3 4 76 61 28 67 1,369 1,989 72 82

Asia Pacific Region 3 15 43 285 10 11 1,160 1,125 – –

Latin America 40 38 – – – – 34 35 – –

Central and Eastern Europe 0 0 – – 7 69 640 595 – –

Middle East 9 9 – – 0 4 129 157 – –

African countries 0 0 – – 2 2 85 89 – –

International organisations 226 285 466 535 – – – – – –

Other – – – – – – – – 102 98

Total 1,792 2,839 15,586 15,420 5,807 6,957 29,099 31,002 353 386


[TAB. 10] EXPOSURE VALUES BY ECONOMIC SECTORS IN € M

CRSA IRBA

Total (including: SME1))

Central governments/ central banks Institutions

Corporates (including: SME1))


2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

Credit institutions 677 1,416 1,705 1,624 5,106 5,302 68 55 4 3

– – – – – – – – – –

Other financial institutions 294 347 – – 610 588 813 1,173 54 55

2 9 – – – – 62 59 – –

Public sector 555 727 13,881 13,797 14 23 257 382 – –

0 0 – – – – 29 32 – –

Private households 19 35 – – – 0 193 206 19 11

1 1 – – – – 10 16 – –

Properties and flats 118 119 – – 1 611 8,300 7,784 – –

25 29 – – – – 67 46 – –

Shipping 10 25 – – – 27 4,162 5,206 – –

7 15 – – – – 39 40 – –

Industry 23 24 – – – 61 6,631 7,438 12 12

5 4 – – – – 206 150 – –

Trade and transport 6 15 – – 76 324 2,888 2,666 15 23

2 1 – – – – 255 157 – –

Other services 89 133 – – 1 20 5,708 6,009 2 9

1 17 – – – – 129 222 – –

Other 1 0 – – – – 79 81 248 272

– – – – – – – – – –

Total 1,792 2,839 15,586 15,420 5,807 6,957 29,099 31,002 353 386

43 76 – – – – 797 722 – –

1) Small and medium size companies

[TAB. 11] EXPOSURE VALUES BY CONTRACTUAL REMAINING MATURITY IN € M

CRSA IRBA

Total

Central governments/ central banks Institutions Corporates


2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

≤ 1 day1 52 78 3,386 2,706 184 192 1,532 1,459 5 7

> 1 day ≤ 3 months 660 1,431 943 636 419 236 1,288 808 – –

> 3 months ≤ 6 months 80 211 509 598 51 311 469 520 – –

> 6 months ≤ 1 year 181 149 423 284 694 287 1,957 1,449 – –

> 1 year ≤ 5 years 273 250 6,137 5,428 2,641 3,381 12,189 13,850 15 23

> 5 years2 546 719 4,188 5,767 1,817 2,549 11,664 12,916 332 356

Total 1,792 2,839 15,586 15,420 5,807 6,957 29,099 31,002 353 386

1) The residual maturity of "1 day" includes all transactions due within one day, which also means transactions callable daily with indefinite maturity 2) Receivables which generally do not have fixed terms to maturity, like investment shares, are included in the last maturity range with a flat residual maturity of 10 years


3.1.2. DEFINITIONS OF ”PAST DUE“ AND ”IMPAIRED“ FOR ACCOUNTING PURPOSES

For accounting purposes an impairment test is to be performed for

financial instruments held in the Loans and Receivables category in

accordance with IAS 39, as soon as there is objective evidence of

impairment. The value adjustment required, which is recognized as an

individual valuation allowance, is calculated as the difference between

the present value of the cash flows still expected to be received from

the loan, discounted using the original effective interest rate of the

loan, and the current carrying amount. Provisions are also recognized

for imminent draw downs under irrevocable commitments made to

customers in default. The loans are then divided into the following

categories depending on the creditworthiness of the borrower:

[TAB. 12] DIVISION OF RECEIVABLES INTO PAST DUE AND IMPAIRED No individual valuation allowances or reserves created

Loans without identifiable default risks. As at the reporting date these loans do not show any risk; no individual valuation allowances or reserves are created for these credits, only portfolio valuation allowances.

A loan is past due when the counterparty has not made a contractually agreed-upon payment. For this purpose, even a single day past due is taken into account.

past due

Creation of individual valuation allowances, reserves or direct write-offs

Impaired On the basis of objective criteria, for these loans (partial) default is expected; hence the creation of an adequate individual valuation allowances or provision is required. No (additional) portfolio valuation allowances are created for these loans.

impaired

Non-recoverable loans Such receivables can no longer be collected. No recoverable collateral available. These loans need to be written-off.

3.1.3. DESCRIPTION OF THE APPROACHES AND METHODS ADOPTED FOR DETERMINING SPECIFIC AND GENERAL CREDIT RISK ADJUSTMENTS

HSH Nordbank pays the utmost attention to default risk in the risk

management process. Impairment losses incurred on a loan commit-

ment are covered by the recognition of individual valuation allowanc-

es for loans and advances and provisions for contingent liabilities in

the amount of the potential default in accordance with uniform

Group-wide standards. HSH Nordbank also recognizes portfolio

valuation allowances for latent default risks, which have already mate-

rialized but have not yet been identified by the Bank.

The approaches and methods adopted for determining specific and

general credit risk adjustments in accordance with Article 442 subpar-

agraph (b) CRR are set out in the information provided in the Group

Management Report and Group Financial Statements (Group explan-

atory notes, Note 8 "Accounting Policies") in HSH Nordbank's Annual

Report.

3.1.4. DEVELOPMENT OF LOAN LOSS PROVISIONS IN THE LENDING BUSINESS

Consistent with Article 442 subparagraph (i) CRR, Table 13 lists the

overall portfolio as well as the changes in loan loss provision types in

the reporting.

Individual valuation allowances, provisions and portfolio valuation

allowances total € 6,822 million as at the reporting date. Loan loss

provisions recognized in particular for legacy portfolios were largely

compensated by the hedging effect of the second loss guarantee (com-

pensation item). The compensation item amounts to € 7,854 million.

Detailed information on changes in loan loss provisions and on the

hedging effect of the guarantee facility is set out in the Group Man-

agement Report (Economic Report) and Group Financial Statements

(Group explanatory notes, Note 3 "Provision of a guarantee facility")

in HSH Nordbank's Annual Report.


[TAB. 13] DEVELOPMENT OF LOAN PROVISIONS IN € M

Individual valuation allowances Provisions Portfolio valuation allowances

2016 2015 2016 2015 2016 2015

Portfolio at the beginning of the reporting year 7,615 5,791 57 47 663 395

Addition 2,590 3,714 77 36 34 252

Reversal 908 892 63 26 281 1

Utilisation 2,877 1,269 5 1 – –

Interest income – 162 – 207 – – – –

Changes due to exchange rate fluctuations and other changes 80 479 0 1 3 17

Portfolio at the closing date 6,336 7,615 67 57 419 663

3.1.5. IMPAIRED AND PAST DUE RECEIVABLES IN THE LENDING BUSINESS BY ECONOMIC SECTORS AND GEOGRAPHICAL AREAS

Table 14 and Table 15 show the non-performing and past due receiva-

bles broken down by economic sectors and geographical areas con-

sistent with Article 442 subparagraphs (g) and (h) CRR.

As at the reporting date, receivables from nonperforming loans (need-

ing value adjustments, i.e. individual value reserves or loan loss provi-

sions) totaled € 10,182 million, and receivables of past due loans (not

needing value adjustments) totaled € 2,082 million.

[TAB. 14] IMPAIRED OR PAST RECEIVABLES BY ECONOMIC SECTORS IN € M

Portfolio

Impaired1) Individual valuation allowance Provisions Portfolio valuation allowance

Main branch 2016 2015 2016 2015 2016 2015 2016 2015

Credit institutions – – – 14 – 0 3 3

Other financial institutions 106 618 34 106 – 0 6 17

Public sector 10 90 10 40 0 0 4 10

Private households 124 145 95 104 – – 7 15

Properties and flats 1,127 2,113 484 958 3 3 53 117

Shipping 6,841 10,016 4,787 5,386 39 21 244 294

Industry 1,045 955 567 509 20 23 50 112

Trade and transport 313 353 185 176 4 3 21 41

Other services 616 815 174 321 1 6 33 54

Other – – – – – – – –

Total 10,182 15,105 6,336 7,614 67 56 421 663

1) Total receivables from impaired loans (with need for valuation allowances; i.e. need for individual valuation allowances or provisions)


Net additions/reversals of

Individual valuation

allowances Provisions Portfolio valuation

allowance DW2) Receipts3) Total receivables

past due4)

Main branch 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

Credit institutions – – 1 – – – 1 2 – – – – – –

Other financial institutions 2 4 0 0 – 4 7 – – – – 11 25

Public sector – 18 – 20 0 1 – 2 5 – – – – 1 8

Private households 4 22 – – – 4 7 – – – – 10 32

Properties and flats – 151 172 – 3 3 – 34 59 – – – – 404 390

Shipping 1,628 2,549 22 12 – 137 120 – – – – 1,594 352

Industry 181 93 2 2 – 32 – 3 – – – – 40 133

Trade and transport 39 20 1 2 – 13 23 – – – – 3 26

Other services – 1 – 18 – 5 – 2 – 19 30 – – – – 19 83

Other – – – – – – 187 86 60 149 – –

Total 1,684 2,821 13 10 – 246 250 187 86 60 149 2,082 1,049

2) Direct write-offs 3) Recoveries on receivables written off 4) Total receivables from past due loans (without need of valuation allowances)

[TAB. 15] IMPAIRED OR PAST DUE RECEIVABLES BY GEOGRAPHICAL AREAS IN € M

Impaired1)

Individual valuation allowance portfolio Provisions portfolio

portfolio valuation allowance

Total receivables past due2)

Main region 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

Germany 4,748 8,289 3,277 4,460 42 53 167 334 853 453

Western Europe (without Germany) 3,586 4,800 1,913 2,074 14 3 146 210 1,010 480

North America 51 80 26 59 – – 18 25 0 9

Asia Pacific Region 1,085 873 865 557 11 0 35 32 115 29

Latin America 22 164 27 149 0 0 6 5 – –

Central and Eastern Europe 337 541 92 207 0 0 37 33 104 78

Middle East 273 299 90 81 – – 7 19 – –

African countries 80 59 46 27 – – 2 4 – –

International organisations – – – – – – – – – –

Other – – – – – – – – – –

Total 10,182 15,105 6,336 7,614 67 56 418 662 2,082 1,049

1) Total receivables from impaired loans (with need for valuation allowances; i.e. need for individual valuation allowances or provisions) 2) Total receivables from of past due loans (without need for valuation allowances)


3.2. USE OF ECAI

3.2.1. NAMES OF THE NOMINATED ECAI AND ECA Under the Standardised Approach for credit risk the required risk

weight for the calculation of own capital backing is stipulated by the

supervisory authority. The risk weight depends on the type of receiva-

ble, its external rating and any collateral. HSH Nordbank uses external

credit assessments provided by external credit assessment institutions

(ECAI) recognised by the supervisory authorities for the determina-

tion of risk weights in accordance with Article 138 and 269 CRR.

Different rating agencies (ECAI) or export insurance agencies (ECA)

can be appointed for each category of receivables. The CRSA or IRBA

exposure class Securitisations allows rating agencies to be appointed at

the transaction level; for all other CRSA exposures they are appointed

per receivables category related to credit assessment.

If an external credit assessment of a recognised rating agency is used,

the assessment is to be transferred into a credit assessment according

to the rating master scale. It needs to be checked for each approved

ECAI whether an external rating exists or not. If there is more than

one external rating available, of the two ratings leading to the lowest

CRSA risk weights, the rating with the higher CRSA risk weight is

decisive. HSH Nordbank generally uses the issuer rating for exposures

that are not part of the trading book, except for ABS transactions

where the external rating for the transaction is used.

HSH Nordbank has admitted only the ECAIs listed in Table 16 to be

used with respect to Article 444 subparagraph (a) CRR and makes use

of these for the exposure classes listed pursuant to Article 444 subpar-

agraph (b) CRR. Export credit agencies are not used in this context.

ECAIs are only nominated for the sovereign and securitisation receiv-

ables categories. Whilst only the Standardised Approach for credit risk

is involved for sovereign receivables, external ratings are used for

securitisation positions under both the Standardised and IRB ap-

proaches. The external rating of the respective central government is

relevant for transactions as defined in Articles 115 and 116 CRR as

well as Article 119 in connection with Article 121 CRR and applied in

determining the risk weight. Transactions assigned to the regional or

local authority, public sector entity and institutions exposure classes

are affected by this. These continue to be disclosed in the above-

mentioned exposure classes.

[TAB. 16] RATING AGENCIES BY RECEIVABLES CATEGORY

Receivables category Exposure class Rating agency

States Central governments and central banks

Fitch, Moody’s, S & P

Securitisations CRSA securitisation exposures IRBA securitisation exposures

Fitch, Moody’s, S & P

3.2.2. TRANSFER OF ISSUER AND ISSUE OF CREDIT ASSESSMENTS

The process used by HSH Nordbank to transfer credit assessments of

issuers and issues in accordance with Article 444 subparagraph (c)

CRR is described below.

Issuer credit assessments are necessary to determine the CRSA and

IRBA risk weight for securitisations as well as the eligibility of collat-

erals for CRSA and IRBA exposures. HSH Nordbank uses issue credit

assessments provided by the rating agencies Fitch, Moody's and S & P.

The listed rating agencies were designated to the regulatory authorities

by HSH Nordbank.

3.2.3. CRSA AND IRBA EXPOSURE VALUES UNDER REGULATORY RISK WEIGHTS

In order to determine the capital requirements, both the Standardized

Approach for credit risk and the Advanced IRB Approach require

risk-weighted exposures (the product of risk weight and exposure

value) to be created. For the Standardized Approach for credit risk the

risk weights depending on exposure classes and the published stand-

ard assignments of external ratings in accordance with Article 444

subparagraph (d) CRR. Table 17 shows the CRSA exposure values

before and after credit risk reduction measures in accordance with

Article 444 subparagraph (e) CRR. Substitution effects mean that

exposure values with risk weights that were originally higher are

replaced with those with a lower risk weight.

In contrast, the Advanced IRB Approach always calculates the risk

weights using parameters assessed internally. The IRBA exposure class

Equity exposure and IRBA Special Financing positions are exceptions.

In these cases it is possible to determine risk weight using the “simple

risk weight” methodology. Risk weighting is set by the supervisory

authorities depending on fixed criteria. However, HSH Nordbank

currently only partially uses the simple risk weight approach for equity

exposures. Depending on whether the equity exposure is not quoted

on the stock exchange but is diversified sufficiently, or represents a

quoted or another equity exposure, a risk weight of 190 %, 290 %

and/or 370 % in accordance with Article 155 (2) CRR is allocated.

Significant equity holdings in a financial sector entity receive a risk

weight of 250 % subject to Article 155 (1) CRR in conjunction with

Article 48 (4) CRR. The exposure values of the above-mentioned

equity exposures are also listed in Table 17 in accordance with Arti-


cle 438 sentence 2 CRR. This classification does not include securitizations since they are separately disclosed in Chapter 4.

[TAB. 17] CRSA/ IRBA EXPOSURE VALUES BY REGULATORY RISK WEIGHT IN € M

CRSA before credit risk reduction CRSA after credit risk reduction Advanced IRBA

Risk weight in % 2016 2015 2016 2015 2016 2015

0 253 319 253 319 – –

2 728 1,417 175 182 – –

4 – – – – – –

10 – – – – – –

20 392 546 150 299 – –

35 – – 5 12 – –

50 – 0 36 2 – –

70 – – – 0 – –

75 26 41 8 29 – –

100 381 640 362 640 – –

150 113 74 112 71 – –

190 – – – – – –

250 1 2 0 0 – –

290 – – – – 3 –

370 – – – – 55 43

1,250 – – – – – –

Capital deduction – – – – – –

Other risk weights 49 55 40 49 – –

Total 1,943 3,094 1,141 1,603 58 43

3.3. COUNTERPARTY CREDIT RISK

3.3.1. METHODOLOGY UNDER WHICH INTERNAL CAPITAL AND CEILINGS FOR COUNTERPARTY CREDIT RISK EXPOSURES ARE ASSIGNED

The usual credit approval procedures must be complied with when

creating counterparty credit risk exposures within the meaning of Part

Three Title II Chapter 6 CRR. The risk classification, limitation and

monitoring processes of the classic lending business apply accordingly.

Information, which complies with the requirements as defined in

Article 435 (1) CRR, is set out in the Group Management Report

(Risk Report) in HSH Nordbank's Annual Report, supplemented by

the daily monitoring of derivative/issuer exposures in accordance with

MaRisk requirements. As part of the monitoring of trading lines the

potential future exposure on currency, interest rate and commodity

derivatives is recalculated daily for each customer on the basis of a 95 %

quantile and compared to the respective trading limit. The eligible

sums for counterparty credit risk exposures are included in the Bank-

wide economic management, capital allocation and limitation togeth-

er with the other exposures subject to credit risk.

3.3.2. RULES FOR SECURING COLLATERAL AND ESTABLISHING CREDIT RESERVES

In connection with counterparty credit risk exposures

HSH Nordbank uses the rules described below for securing collateral

and establishing credit reserves in accordance with Article 439 sub-

paragraph (b) CRR.

Policies for securing collateral Derivative transactions for hedging interest rate, foreign exchange and

other similar risks are generally concluded with single counterparties

and governed by OTC master agreements, namely either the German

Master Agreement for Financial Derivate Transactions or the interna-

tional Master Agreement of the International Swaps and Derivatives

Association (ISDA) in the 1992 or 2002 versions respectively.

In addition, collateral agreements supplementing a number of master

agreements were concluded, mostly with banks in Germany and

abroad, but also with non-banks in individual instances. This involves

the Credit Support Annex to the German Master Agreement and the

ISDA Credit Support Annex to the ISDA Master Agreement. The

following information applies equally to both Master Agreement types

and the associated collateral agreements.


The collateral agreements include agreements on thresholds which are

unsecured, eligible collateral, other collateral arrangements and the

scope of the collateral agreement. Agreed collateral is generally cash,

plus in several cases as an exception interest-bearing securities from

G10 nations or other EU Member States with good ratings, which

may be received or delivered through (generally daily) margining.

The cash collateral agreed consists of amounts in a convertible and

freely transferable currency (normally euro or US dollar).

The Master Agreements and the collateral agreements are entered in

the Legal Database Information System (LeDIS), in which a daily

review is conducted for each individual derivative transaction as to

eligibility for netting under supervisory law, the inclusion in a collat-

eral agreement as well as the legal basis for use as collateral as to each

individual derivative transaction.

For central clearing of OTC derivatives HSH Nordbank has joined the

London Clearing House (LCH). A Client-clearing-procedure is used

via two renowned client-broker. Moreover, HSH Nordbank has been

authorized as a registered customer for the clearing of OTC deriva-

tives on EUREX.

Policies for value adjustments for counterparty credit risks HSH Nordbank uses the mark-to-market method for determining

counterparty credit risk in accordance with Article 274 CRR.

Derivative financial instruments are accounted for and measured in

accordance with the IFRS rules. More detailed information on the

recognition and measurement inclusive value adjustments for coun-

terparty credit risk is set out in the Group Financial Statements

(Group explanatory notes, Note 8 "Accounting Policies") in


3.3.3. POLICIES WITH RESPECT TO WRONG-WAY RISK

Methods based on internal models pursuant to Articles 276 to 282

CRR are not used. Accordingly, no information according to Arti-

cle 439 subparagraphs (c) and (i) CRR regarding Wrong-Way risk

pursuant to Article 291 CRR and/or the estimate for value α pursuant

to Article 284 CRR is disclosed.

3.3.4. CHANGES IN THE AMOUNT OF COLLATERAL GIVEN A DOWNGRADE IN THE CREDIT RATING

The collateral agreements to these Master Agreements occasionally

include individual clauses which could require the HSH Nordbank to

supply collateral or additional collateral in the event that one of the

external ratings of the Bank is downgraded. As at the reporting date, a

ratings downgrade of one notch by the rating agencies Moody's

and/or Fitch would result in additional collateral of € 25 million to be

disclosed in accordance with Article 439 subparagraph (d) CRR,

which would not materially affect HSH Nordbank’s risk bearing

capacity.

3.3.5. GROSS POSITIVE FAIR VALUE AND NET CREDIT EXPOSURES

The extent to which HSH Nordbank is involved in different contract

types and to what extent netting is used is set out in Table 18 in ac-

cordance with Article 439 subparagraph (e) CRR. Eligible collateral

and net default exposures are also disclosed. Only collateral eligible in

the Standardized Approach for credit risk directly reduces the credit

exposures, whereas collateral disclosed is incorporated in the deter-

mination of LGD under the Advanced IRB Approach (see also Section

3.7.6). Derivatives in connection with securitizations are not shown in

the following table as they are described separately in Chapter 4.

[TAB. 18] NET DERIVATIVES CREDIT EXPOSURE IN € M

Gross positive fair value Netting benefits

Netted credit exposure Collateral held Net credit exposure

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

Interest-related contracts 5,381 5,816 – – – –

Currency-related contracts 150 283 – – – –

Shares/index-related contracts 128 104 – – – –

Loan derivatives 41 47 – – – –

Goods-related contracts – 46 – – – –

Other contracts 475 601 – – – –

Total 6,176 6,897 3,659 3,676 2,517 3,221 781 878 1,736 2,343

Parameters for the exposure to counterparty credit risk based on the

approach used (regulatory market assessment approach) are given in


Table 19 in accordance with Article 439 subparagraph (f) CRR. Expo-

sures forming part of securitizations are not shown in the following

table as they are described separately in Chapter 4.

[TAB. 19] COUNTERPARTY CREDIT RISK IN € M

Exposure value for counterparty credit risk

2016 2015

Mark-to-Market Method 2,936 3,749

3.3.6. CREDIT DERIVATIVES Credit derivatives purchased to hedge the loan portfolio of

HSH Nordbank are shown in accordance with Article 439 subpara-

graph (g) CRR in Table 20. The nominal amount of the hedging with

credit derivatives remained unchanged at zero as at the reporting date.

Default risk exposures are accordingly not broken down by type.

[TAB. 20] NOMINAL VALUE OF CREDIT DERIVATIVES ELIGIBLE FOR COLLATERAL IN € M

Nominal value of collateral

2016 2015

Credit derivatives (secured party) – –

HSH Nordbank acts as both buyer and seller of credit derivatives (see

Table 21 in accordance with Article 439 subparagraph (h) CRR).

There were still no brokerage transactions as at the reporting date.

Positions held as part of securitisation transactions are not included in

the presentation, as they are addressed separately in Chapter 4.

[TAB. 21] NOMINAL VALUES OF CREDIT DERIVATIVES IN € M

Use for own credit portfolio

bought sold Brokerage activity

2016 2015 2016 2015 2016 2015

Credit Default Swaps 160 171 96 135 – –

Total Return Swaps – – – – – –

Credit Options – – – – – –

Other contracts – – – – – –

Total 160 171 96 135 – –


3.4. EQUITY HOLDINGS IN THE BANKING BOOK

The regulatory authorities state that equity holdings must be consoli-

dated, deducted from equity or backed with equity capital in the

exposure class Equity holdings. In this context regulatory law consid-

ers equity holding risk to be a sub-class of the counterparty credit risk.

A key objective of the Bank is to wind down the equity holdings not

relevant to the core business. In the reporting year, the equity holding

portfolio has been reduced. A further marginal decrease is to be

expected in the financial year 2017.

The equity holdings from the banking book are explained below.

3.4.1. OBJECTIVES OF EQUITY HOLDINGS The equity holding portfolio of the HSH Nordbank is divided essen-

tially into five sub-portfolios. Each sub-portfolio has a different objec-

tive.

Strategic equity holdings Strategic equity holdings are all those which have a strategic im-

portance for the Group and/or promote the economic interests of the

region.

Equity holdings to support business segments Equity holdings to support business segments are oriented towards

expanding existing customer relationships or creating new ones.

Wind-down equity holdings Wind-down equity holdings are former strategic equity holdings

and/or equity holdings which must be wound-down in light of the

decision of the EU Commission.

Bail-out purchases Bail-out purchases are equity exposures which are entered into as part

of the restructuring of a loan.

Other equity holdings In contrast to the financial accounting regulations all items that con-

tain a subordinated residual claim to the assets or income of the issuer

are classified as equity holding under supervisory law. Equity holdings

which are considered as an equity holding under supervisory aspects

(in accordance with CRR) but mostly are allocated to the item “Shares

and other non-fixed-income securities” (in accordance with IFRS) do

not therefore belong to the divisions described above and instead are

treated as other equity holdings.

Equity holdings contained in investment funds or funds-like certificates HSH Nordbank did not have equity holdings contained in invest-

ments funds or funds-like certificates as at the end of the reporting

year 2015 and 2016.

3.4.2. ACCOUNTING POLICIES FOR EQUITY HOLDINGS

Regular business valuations represent an important instrument for

monitoring and managing equity holding risks in the case of both

strategic and business segment relevant and wind-down equity hold-

ings and bail-out purchases. The processes have been designed to

ensure that the recoverability of all HSH Nordbank’s direct equity

holdings and relevant indirect equity holding are assessed at least once

a year. Significant equity holdings are subject to a detailed assessment

using the relevant standards of the Institute of Public Auditors in

Germany (“Institut der Wirtschaftsprüfer”). All other equity holdings

undergo a risk-oriented assessment.

Equity holdings which are allocated to the sub-portfolio “Other equity

holdings” also represent a long-term commitment due to their alloca-

tion to the Bank’s investment portfolio.

Assets disclosed under the position financial investments are generally

classified as AFS under IAS 39. Assets in the AFS category are general-

ly measured initially at fair value. This also applies to the subsequent

measurement of financial investments such as securities that are

normally traded on an exchange. Equity instruments for which there

is no active market and a fair value cannot be determined by other

methods, are recognised at cost in the subsequent measurement by

way of exception.

A permanent diminution in the value of the respective equity holding

in terms of the difference between the carrying amount and fair value

forms the basis for impairment.

3.4.3. OVERVIEW OF EQUITY HOLDINGS IN THE BANKING BOOK

The equity holding portfolio of the banking book of HSH Nordbank

as defined by Article 447 subparagraph (b) and (c) CRR is shown in

Table 22.


[TAB. 22] VALUATION OF EQUITY HOLDING INSTRUMENTS IN € M

Carrying amount Fair value Stock market value

Equity holding portfolio 2016 2015 2016 2015 2016 2015

Strategic equity holdings 5 5 5 5 – –

Items traded on the stock exchange – – – – – –

Not listed on the stock exchange but belonging to a sufficiently diversified equity holding portfolio – – – – – –

Other equity holding exposures 5 5 5 5 – –

Business field-related equity holdings 1 1 1 1 – –

Items traded on the stock exchange – – – – – –



Wind-down equity holdings 134 121 134 121 – –

Items traded on the stock exchange 1 1 1 1 1 1



Bail-out purchases 0 0 0 0 – –




Other equity holdings 118 228 118 228 – –




Total 258 355 258 355 – –

3.4.4. REALISED PROFITS AND LOSSES AND UNREALISED REVALUATION GAINS AND LOSSES FOR EQUITY HOLDINGS

In accordance with Article 447 subparagraph (d) CRR cumulative

realized gains or losses arising from sales and liquidations in the

reporting period are disclosed in Table 23 on the basis of IFRS ac-

counting standards; this also applies to the information as at 31 De-

cember 2015. They do not include any impairment losses on equity

holdings still held in the portfolio. The amount of unrealized revalua-

tion gains (or losses), which represent unrealized gains (or losses) that

are recognized directly in equity but not through profit or loss, is also

shown in accordance with Article 447 subparagraph (e) CRR. It is also

stated whether these are included in the regulatory Common Equity

Tier 1 capital. Latent revaluation gains (or losses) are not disclosed, as

HSH Nordbank applies IFRS accounting standards for determining

capital adequacy and consequently also uses the IFRS accounting

standards for disclosure purposes.


[TAB. 23] REALISED AND UNREALISED GAINS OR LOSSES FROM EQUITY HOLDING INSTRUMENTS IN € M

Unrealized revaluation gains/losses

Realized gains or losses from sales and liquidations Overall

of which amounts included in Tier 1 or Tier 2 capital

2016 2015 2016 2015 2016 2015

Equity holding exposures 1 17 –20 9 –4 9

Total 1 17 –20 9 –4 9

3.5. INFORMATION ON THE USE OF IRB APPROACH FOR CREDIT RISK: METHODS & RATING SYSTEMS

3.5.1. PERMISSION FROM THE COMPETENT AUTHORITIES TO USE THE IRB APPROACH OR ACCEPTED TRANSITIONAL ARRANGEMENTS

HSH Nordbank determines all parameters required to determine the

risk-weighted exposure amount internally, i.e. probability of default

(PD), loss given default (LGD), exposure at default (EaD), credit

conversion factor (CCF) and maturity (M), and hence, complies with

the requirements of the Advanced IRB Approach for credit risks.

HSH Nordbank had already received the necessary permission from

the competent authorities in 2007 to use this approach in accordance

with Article 452 sub-paragraph (a) CRR. The implementation phase

was completed as at 31 December 2012 by achieving the exit threshold

in accordance with Section 10 (3) SolvV.

HSH Nordbank does not currently apply any transitional arrange-

ments with respect to the use of the IRB Approach. Exposure classes,

to which the Standardised Approach for credit risk is permanently

applied, and any relevant exemptions or transitional arrangements for

these exposure classes are presented at appropriate points in the fol-

lowing sections.

An exit threshold of over 92 % is achieved for all coverage ratios of

regulatory relevance - i.e. based on IRBA exposure values pursuant to

Section 11 (1) SolvV and on risk-weighted IRBA exposure values

pursuant to Section 11 (2) SolvV - as at the reporting date at both the

institution, sub-group and holding level.

3.5.2. STRUCTURE OF THE INTERNAL RATING SYSTEMS AND RELATIONSHIP BETWEEN INTERNAL AND EXTERNAL CREDIT ASSESSMENTS

The rating systems for the individual portfolio segments were devel-

oped early on in cooperation with nine Landesbanks (Landesbank

project) based on scorecard and simulation approaches. This coopera-

tion between the Landesbanks led to the founding of RSU Rating

Service Unit GmbH & Co. KG (RSU) in 2003. Since 2004, this com-

pany has assumed responsibility for the methodological maintenance

and development of the rating systems. The individual Landesbanks

provide their expertise in the form of competence or support centers.

Currently, 11 of the rating modules developed by the participating

banks and provided by RSU are used in HSH Nordbank. In addition,

RSU has integrated two rating modules from SR und Risikosysteme

GmbH (SR), a subsidiary of Deutscher Sparkassen- und Giroverband

(DSGV), into the central LB-Rating application. These rating modules

are all rating systems recognized at HSH Nordbank for the purposes

of reporting under CRR.

The structure of the internal rating systems and relationship between

internal and external credit assessments pursuant to Article 452 sub-

paragraph (b) (i) CRR are explained below.

Rating methods The rating systems distinguish between scorecard and cash flow

approaches. The scorecard approach identifies characteristics and

factors that are able to differentiate between good and bad borrowers.

Their validity is first verified with a single factor model. Subsequently,

several characteristics, which each have high significance in a single

factor model, are combined to create a multi-factor model. The scores

determined using the multi-factor model are translated to default

probabilities. A precondition for the application of a scorecard ap-

proach is that a sufficient number of relatively homogeneous borrow-

ers are available.

The cash flow approach simulates cash flows of one asset in various

scenarios. These vary depending on macro-economic and sector-

based conditions. A simulation engine (SimEngine) is used to create

numerous scenarios which differ according to macro-economic con-

ditions. Additionally, sector-based models calculate scenarios for

future changes in sector-related factors such as rents, vacancies or

charter rates. The values are then fed into the calculation of scenarios

for the cash flow of the corresponding asset. Subsequently scenarios

are selected where the borrower must be considered to be defaulting.

The default probability is calculated as a ratio from the number of

scenarios where a default was recorded to the total number of scenari-

os.

Both the scorecard and the cash flow approaches include quantitative

as well as qualitative factors. Once these factors have been taken into


consideration, warning signals and the company background are

examined. There are also override opportunities, allowing ratings to

be moved up to a limited extent and down to an unlimited extent. The

rating result, the local currency rating or LCR, is only finalised once

all these aspects have been taken into consideration. As a result, an

individual PD is obtained for each borrower, enabling assignment to a

specific credit rating class. When measuring borrower risk, the risk of

foreign currency transfer restrictions has to be considered, as well as

default risk.

The rating result is calibrated on a standard rating master scale. This

master scale is the DSGV master scale from which HSH Nordbank

implemented 22 live and 3 default categories. Each rating class on the

rating master scale is assigned a one-year default probability. This

standard rating scale allows for immediate comparison of exiting

ratings separately from the portfolio segment. The scale also includes

mapping of external ratings to the internal categories.

The rating modules and methods used at HSH Nordbank as at the

reporting date for the purposes of reporting under CRR are shown in

Table 24. Capital backing is calculated using the Advanced IRB Ap-

proach.

[TAB. 24] RATING MODULES OF HSH NORDBANK APPROVED BY THE SUPERVISORY AUTHORITIES

Borrower, bearer of economic risk, asset or project

Rating module Rating method

Corporates Corporates Sparkassen-Standard Rating

Scorecard

Real estate Sparkassen-ImmobiliengeschäftsRating Internationale Immobilienfinanzierungen

Cash flow and scorecard

Ships Ship financing Cash flow

Banks, savings banks Banks and DSGV guarantee system Scorecard

Insurance companies Insurance companies Scorecard

International regional authorities International regional authorities Scorecard

Leasing companies, real estate lessees Leasing Scorecard with cash flow component

Projects Project financing Cash flow

Single-airline-financing Aircraft financing Cash flow

LBO financing Leveraged finance Scorecard

Individuals, self-employed, craftsmen, corporate clients

Sparkassen-StandardRating or Sparkassen-ImmobiliengeschäftsRating (depending on the primary origin of capital)

Scorecard or cash flow

States, national authorities Country and transfer risk Scorecard

The Landesbanks participating in the further development of the

RSU-rating systems are divided into competence and support centers

and participants. The competence centre bank assumes a leading role

in the development and maintenance of modules where it can offer

special expertise. It is supported by experts from the support banks.

HSH Nordbank has the main responsibility for the rating modules

ship financing and leveraged finance. HSH Nordbank is also co-

responsible for the modules international real estate financing and

country and transfer risk.

In addition, during the year 2009 the LGD and CCF methodology

developed be HSH Nordbank and approved by supervisory authori-

ties was transferred to RSU. HSH Nordbank now plays the role of

centre of competence for LGD-validation for all rating systems except

aircraft- and project finance.


[TAB. 25] CONNECTION BETWEEN INTERNAL AND EXTERNAL CREDIT ASSESSMENTS

Rating classification by master scale rating

Moody’s S & P Fitch

1(AAAA) - - -

1(AAA) Aaa, Aa1 AAA, AA+ AAA

1(AA+) Aa2, Aa3 AA, AA- AA+, AA

1(AA) A1 A+ AA-

1(AA-) - - -

1(A+) A2 A A+

1(A) A3 A- A

1(A-) - - -

2 Baa1 BBB+ A-

3 Baa2 BBB BBB+

4 Baa3 - BBB

5 - BBB- -

6 Ba1 BB+ BBB-

7 Ba2 BB BB+

8 - - BB

9 Ba3 BB- BB-

10 B1 B+ -

11 - - B+

12 B2 B B

13 - - -

14 B3 B- B-

15 Caa1 – Caa3 CCC+ - C CCC+ - C

16 – 18 Default Rating Default Rating Default Rating

LGD method The LGD calculation method was developed successively by

HSH Nordbank for each rating segment, and is continuously reviewed

and refined in the course of the annual validation process. Since the

transition to the RSU association in 2009, validation has been done

jointly with other Landesbanks. The result are estimation methods for

the determination of the risk of secured and unsecured exposures

under consideration of recovery rates regarding specific collateral and

specific borrowers (proceeds of the assets in bankruptcy). The secured

exposure is not totally free of risk and has a basic risk. LGD calcula-

tion takes into account the current data in the legacy systems.

When determining LGD (overall LGD) three possible default scenari-

os are considered. In addition to winding down, restructuring of the

defaulted commitment is possible. In the best case scenario recovery is

possible. LGD estimation is based on observation of the workout case.

In order to draw up a forecast for the loss ratio, the proceeds of the

sale of collateral (the product of the market value of the collateral asset

and a recovery rate specific to that asset) and proceeds from the bank-

ruptcy estate (the product of non-collateralised exposure and a bor-

rower-specific recovery rate) are used.

Modeling is based on historical losses, which are collected together

with other Landesbanks and analysed using statistical and economet-

ric techniques.

CCF method In contrast to assets on the balance sheet, where future exposure can

be calculated from the loan agreements, receivables from the classic

off-balance-sheet business must have the exposure at default (EaD)

calculated using a credit conversion factor (CCF). The CCF is assessed

annually on a joint basis as part of the RSU association together with

other Landesbanks. For transactions with unlimited future absorption,

different product categories are used.

3.5.3. USE OF INTERNAL ESTIMATES FOR PURPOSES OTHER THAN FOR CALCULATING THE RISK-WEIGHTED EXPOSURES UNDER THE IRB APPROACH

HSH Nordbank uses parameters determined internally within the

meaning of Article 452 subparagraph (b) (ii) CRR in many areas of

the Group. For example, all risk parameters EaD, PD, LGD and CCF

are used actively for the overall management of the Bank. The risk

parameters in particular are embedded into risk-adjusted pricing of

loan applications, the procedure to create loan loss provisions as well

as into the profit centre calculation. The rating systems are used with


the corresponding risk parameters in the following steering systems of

the Bank:

– loan approval procedures/determination of competences

– a priori and ex-post calculation of individual transactions

– limit setting

– reporting

– commitment monitoring

– intensified loan management/ restructuring

In addition, the parameters are used for on-going scenario calcula-

tions and in the planning and strategy process.

3.5.4. CONTROL MECHANISMS FOR RATING SYSTEMS

In accordance with Article 452 subparagraph (b) (iv) CRR the control

mechanisms for the rating systems are described below. In particular,

the independence and accountability of the rating systems and review

of these systems are described.

Description of the rating process including independence and accountability The rating process is divided into a creation process and determina-

tion process and is subject to the dual control principle. The determi-

nation of the rating is set by back office processing and control divi-

sions.

The rating guidelines in the Credit Manual specify for all exposure

amounts (except the retail portfolio and risks with total lending less

than € 750,000 per group of connected clients or less than € 75,000 at

business partner level) that internal rating systems recognised under

supervisory law must be used. An individual credit assessment must

be prepared,

– for borrowers, bearers of economic risk, rating issuers (this applies

also to the purchase of receivables without recourse);

– for persons who act exclusively as support in the rating modules;

– as a precondition in order to include specific collateral (e.g. person-

al collateral) provided as a risk reduction to the benefit of

HSH Nordbank.

Each borrower subject to rating is given only one rating for local

currency rating (LCR) and, if need be, foreign currency rating (FCR).

The LCR determines the counterparty default risk without consider-

ing a foreign currency transfer risk. The foreign currency transfer risk

is incorporated when the FCR is determined.

The exact triggers for the rating are also specified in the Credit Manu-

al. Each rating must be updated according to risk aspects – but at the

latest within twelve months – and verified and confirmed by the back

office department. Special risk aspects which require updating before

the end of the 12 month period are specifically:

– significant expansion of the counterparty default risk

– knowledge of significant new risk-related information

– commitments where a currency transfer risk exists if the risk coun-

try migrates to rating class 9 or worse

– defaults and recoveries according default guidelines.

As long as the person or entity to be assessed is classified in a default

class (rating level 16-18), regular re-rating is not necessary. The default

reasons are however to be updated in the rating, if there is a change

within the default rating classes based on new information received.

This does not apply to the rating systems for ship, aviation and project

financings, for which ratings – also in the case of default - are to be

generally updated at least once within 12 months.

The guidelines in the Credit Manual explain the requirements for

creating a rating unit. It sets out when the rating of the legal borrower

is waived as part of the rating and the loan decision process and the

rating of the bearer of economic risk and/or the rating donor is to be

applied instead.

The rating process is regulated in the Credit Manual. In addition the

respective specialised rating manuals are to be observed with the

regard to the specific module requirements.

To ensure comprehensive rating for the exposure for which risk classi-

fication is required by CRR, the Bank has process quality controlling

(PQC).

Rating systems review A validation of all rating modules and of the LGD and CCF models of

HSH Nordbank is performed annually within the meaning of Arti-

cle 144 (1) subparagraph (e) CRR and Article 185 CRR. This includes

the following steps:

– analysis of portfolio and market performance (e.g. description of

the portfolio according to region and relevant customer types)

– analysis of rating distributions

– backtesting (comparison with actual default rates) and/or bench-

marking (comparison with external ratings)

– calibration (verification of the extent of allocated default probabili-

ties)

– examination of selectivity (ability of the rating module to differenti-

ate between good and bad borrowers)

– review of the model structure and design (e.g. significance and

weighting of individual factors and partial models, inclusion of

supporters, analysis of the frequency with which data were over-

written and the reasons for this, inclusion of the transfer risk)

– examination of the application of ratings (e.g. analysis of data quali-

ty, verification of standard application by carrying out duplicate

analyses).

The process of validation involves two steps:


– The first step involves validation based on the pooled data of all

Landesbanks and/or Landesbanks and savings banks under the lead

management of RSU and/or SR. Data are pooled specifically to cre-

ate the largest possible and hence statistically most significant data-

base. In cooperation with the relevant competence centre and sup-

port centre, RSU performs the validation and, if necessary, the re-

calibration and further development of the modules on the basis of

the pooled data. For the modules of SR, pooling is carried out on

the basis of data from participating savings banks and participating

Landesbanks. Updates are made by SR.

– As the validation is done on the basis of the pooled data, it is neces-

sary to demonstrate that the results can also be applied to

HSH Nordbank. This is done in a second step in cooperation with

RSU and/or SR. In addition further internal analyses to complete

the validation and proof that the rating modules are suitable for use

at HSH Nordbank are performed.

The role of HSH Nordbank during the updating phase on the basis of

the pooled data within the scope of the RSU depends on whether it

has assumed one of the functions of competence and/or support

centre in respect of the module in question.

The LGD and CCF methods are also validated annually jointly with

other Landesbanks, similar to validation of the rating modules.

3.5.5. A DESCRIPTION OF THE INTERNAL RATINGS PROCESS BY EXPOSURE CLASSES

Positions which could not have been rated using a recognised IRBA

rating system but have an internal expert rating are treated as Stand-

ardised Approach for credit risk (Section 3.2.1). The internal valuation

methods applied to exposure classes under the IRB Approach as laid

down in Article 452 subparagraph (c) CRR are as described below.

The IRBA exposures are distributed across the internal rating systems

shown in Section 3.5.2 according to their scope of application. The

scope of application is based on the borrowers, bearers of economic

risk, assets or projects listed in Table 24.

Exposures are assigned to exposure classes irrespective thereof on a

basis of a customer classification key that codes the business partner

according to various attributes.

HSH Nordbank’s definition of a default does not differ from that

contained in Article 178 CRR.

Retail exposures For retail exposures HSH Nordbank only uses the Standardized Ap-

proach for credit risk.

Equity exposures For equity holdings covered by the grandfathering provisions of Arti-

cle 495 (1) CRR, which are given a risk weight of 100 % in Standard-

ized Approach for credit risk, no rating is required under supervisory

law before 31 December 2017. However, ratings are required for

positions entered into since 1 January 2008. The rating systems are

used for these default risks. If none of the rating modules recognized

under supervisory law can be used for an equity holding, the simple

risk weighting method is used, i.e. the risk weight specified in supervi-

sory law is assigned.

3.6. INFORMATION ON THE USE OF IRB APPROACH FOR CREDIT RISK: QUANTITATIVE PART

3.6.1. EXPOSURE VALUES BROKEN DOWN BY EXPOSURE CLASSES AND BY RATING LEVELS UNDER THE IRB APPROACH

The requirements under Article 452 subparagraphs (d), (e) and (j) are

provided in Table 26 to Table 29. HSH Nordbank only uses own

estimates of the LGD and conversion factors to central governments,

central banks, institutions and corporates. Accordingly, separate

disclosure is not made for risk exposures pursuant to Article 452

subparagraph (d) CRR and Article 452 subparagraph (j) (ii) CRR, to

which own estimates of the above-mentioned parameters are not

applied. Securitisation positions are not included in the values listed,

as these are separately disclosed (see Chapter 4). Retail exposures are

also not included, as HSH Nordbank treats these under the Standard-

ized Approach for credit risk; accordingly, information pursuant to

Article 452 subparagraph (f) is not provided. In the case of equity

holdings, only equity holdings under the PD-LGD approach are

shown. The overall long-term equity holding portfolio is described in

more detail in Section 3.4. The exposure value for the other assets

exposure class without obligations as a borrower amounted to

€ 353 million as at the reporting date (previous year: € 386 million).

The rating results determined using the rating modules described

above are calibrated to a standard rating scale, whereby rating classes

16 to 18 represent default classes. The individual rating classes are

summarized in seven Rating ranges for greater clarity. As most of the

receivables have a good rating and there are relatively few receivables

in the poorer rating ranges, the assignment of rating ranges for better

grades has been refined.

The following table shows the exposure values in accordance with Part

Three Title I Chapter 3 Section 5 CRR allowing for credit risk reduc-

tion techniques. It also shows the average probability of default (aver-

age PD), average LGD and average risk weight within a rating range

for the individual exposure classes. All disclosures made in accord-

ance with Article 452 subparagraphs (d) and (e) CRR are based on the

figures in the reports prepared in accordance with Annex I of the

Commission Implementing Regulation (EU) No. 680/2014 of 16 April

2014 defining the implementation of technical standards with regard

to supervisory reporting of institutions.

As part of the credit risk mitigation the second loss piece is migrated

into the central governments exposure class as a financial guarantee


under the substitution principle. As a result, the figures include the

second loss piece totaling € 7.5 billion of the Sunrise Transaction, but

exclude the first loss piece and senior tranche.


[TAB. 26] AVG. PD, AVG. LGD, AVG. RW AND EXPOSURE VALUES IN € M BY RATING RANGES

IRBA exposure class Avg. PD in % Avg. LGD in % Avg. RW in % Exposure value

2016 2015 2016 2015 2016 2015 2016 2015

Rating range 1: 1(AAAA) – 1(AA+)

Central governments and central banks 0.0 0.0 22.8 21.6 0.1 0.1 15,004 24,763

Institutions – – – – – – – –

Corporates – – – – – – – –

Equity holding exposures 1) – – – – – – – –

Subtotal – – 22.8 21.6 0.1 0.1 15,004 24,763

Rating range 2: 1(AA) – 1(A-)

Central governments and central banks 0.0 0.0 30.1 28.9 18.3 22.0 396 443

Institutions 0.1 0.0 14.9 17.2 10.1 13.4 4,018 4,436

Corporates 0.1 0.1 27.0 27.7 14.4 15.7 5,359 4,681


Subtotal 0.1 0.1 22.2 22.9 12.8 14.9 9,774 9,560

Rating range 3: 2 – 5


Institutions 0.1 0.2 22.9 21.8 28.2 25.7 1,781 2,164

Corporates 0.2 0.3 32.3 32.2 35.7 39.5 11,425 12,621


Subtotal 0.2 0.2 31.7 31.3 35.8 38.3 13,342 14,945



Institutions 1.2 1.3 50.1 31.9 115.4 93.0 8 318

Corporates 1.0 1.0 32.5 31.9 63.3 66.3 7,804 9,946

Equity holding exposures 1) 1.3 2.0 90.0 90.0 283.0 309.6 43 40

Subtotal 1.0 1.0 32.9 32.1 64.6 68.1 7,854 10,304


Central governments and central banks 6.7 – 50.0 – 230.1 – 49 –

Institutions – 6.7 – 3.1 – 13.6 – 25

Corporates 4.5 4.8 22.2 17.0 72.0 56.3 988 1,136


Subtotal 4.6 4.9 23.7 16.8 80.0 56.0 1,039 1,163


Central governments and central banks – 10.0 – 50.0 – 261.4 – 54


Corporates 15.8 14.9 29.8 31.2 141.8 163.0 1,572 712


Subtotal 15.8 14.6 29.8 32.5 141.8 169.9 1,572 766

Rating range 7:(Default): 16 – 18


Institutions – 100.0 – 100.0 – 22.0 – 14

Corporates 100.0 100.0 42.9 53.3 49.1 64.1 1,951 1,906


Subtotal 100.0 100.0 43.0 53.9 49.1 63.7 1,956 1,934


Total (without Default)


Institutions 0.1 0.2 17.4 19.2 15.8 20.9 5,807 6,943

Corporates 1.5 1.0 30.8 30.7 46.9 48.5 27,148 29,096


Total 0.8 0.5 27.0 26.0 29.2 26.2 48,585 61,501

1) Only equity holdings under the PD-LGD approach; with regulatory LGD of 65 % or 90 % and default incl. surcharge for unexpected risks; CCF = 100 %

3.6.2. EXPOSURE-WEIGHTED AVERAGE LGD AND PD FOR EACH RELEVANT GEOGRAPHICAL LOCATION

The exposure-weighted average LGD and PD are shown in Table 27

for each geographical area in accordance with Article 452 subpara-

graph (j) (i). Information is provided in accordance with the defini-

tion in Article 452 (3) CRR for the EU Member States Germany,

Greece and Luxembourg, as well as the third countries USA and

Singapore. This relates on the one hand to the countries of domicile of

the debtors included and on the other hand takes into account that

HSH Nordbank is either licensed in these countries or conducts its

business activities there through a branch or subsidiary.


[TAB. 27] AVG. PD, AVG. LGD, AVG. RW AND EXPOSURE VALUE IN € M BY GEOGRAPHICAL LOCATION

Avg. PD in % Avg. LGD in % Avg. RW in % Exposure value

IRBA exposure class 2016 2015 2016 2015 2016 2015 2016 2015

Germany


Institutions 0.1 0.1 20.4 22.4 20.2 20.3 2,692 2,982

Corporates 4.9 6.8 34.8 37.2 47.5 55.7 16,213 17,510

Equity holding exposures1 1.9 3.4 90.0 90.0 285.9 309.5 45 43

Subtotal 2.4 3.5 28.3 29.8 25.3 30.6 33,152 34,278

Greece



Corporates 17.2 3.3 28.3 11.8 72.3 32.7 185 201

Equity holding exposures1 – – – – – – – –

Subtotal 17.2 3.4 28.3 11.9 72.3 32.7 185 201

Luxembourg

Central governments and central banks – – 20.0 20.0 – – 11 12

Institutions 0.1 0.6 33.3 23.1 8.8 50.1 0 611

Corporates 1.4 1.4 24.7 27.4 37.1 43.8 2,151 1,423


Subtotal 1.4 1.2 24.7 26.1 36.9 45.4 2,162 2,046

Singapore

Central governments and central banks – – 20.0 20.0 1.5 1.5 43 285

Institutions – 0.0 – 26.5 – 8.1 – 0

Corporates 14.8 3.8 21.6 17.9 45.3 28.6 567 564


Subtotal 13.7 2.5 21.5 18.6 42.2 19.5 610 849

USA


Institutions 0.1 0.1 30.9 30.9 39.5 29.2 0 0

Corporates 1.9 2.9 20.1 18.6 18.7 15.9 1,215 1,748


Subtotal 1.8 2.8 21.2 19.3 18.0 15.7 1,291 1,809

Total


Institutions 0.1 0.2 20.4 22.5 20.2 25.4 2,692 3,592

Corporates 4.8 6.0 32.4 34.3 44.8 50.8 20,330 21,446


Total 2.6 3.3 27.7 28.8 26.2 30.5 37,399 39,182


3.6.3. UNDRAWN LOAN COMMITMENTS AND AVERAGE EXPOSURE VALUES UNDER THE IRB APPROACH

Based on the rating level ranges listed in Section 3.5.6 the assessment

basis for undrawn loan commitments and the average exposure values

weighted by commitment for each exposure class are given in Table 28

in accordance with Article 452 subparagraph (e) (i) and (iii) CRR.


[TAB. 28] ASSESSMENT BASIS AND AVG. EXPOSURE VALUE IN € M

Central governments and

central banks Institutions Corporates Equity holding

exposures1) Total

IRBA exposure class 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

Rating range 1: 1(AAAA) – 1(AA+)

Basis for evaluation of loan commitments 2 2 – – – – – – 2 2

Basis for evaluation of non-derivative and off-balance assets 0 0 – – – – – – 0 0

Avg. exposure value of loan commitments 0 0 – – – – – – 0 0

Avg. exposure value of non-derivative and off-balance assets 0 0 – – – – – – 0 0

Rating range 2: 1(AA) – 1(A-)

Basis for evaluation of loan commitments – – 1,071 1,066 1,071 1,001 – – 2,141 2,068

Basis for evaluation of non-derivative and off-balance assets – – 25 55 221 121 – – 246 176

Avg. exposure value of loan commitments – – 178 176 26 15 – – 102 98

Avg. exposure value of non-derivative and off-balance assets – – 6 10 7 4 – – 7 6


Basis for evaluation of loan commitments – – – 107 3,994 3,694 – – 3,994 3,801

Basis for evaluation of non-derivative and off-balance assets – – 4 68 946 1,042 – – 950 1,110

Avg. exposure value of loan commitments – – – 15 11 11 – – 11 11



Basis for evaluation of loan commitments – – – 24 3,444 3,158 – – 3,444 3,182

Basis for evaluation of non-derivative and off-balance assets – – 2 0 534 897 – – 536 897

Avg. exposure value of loan commitments – – – 4 15 11 – – 15 11



Basis for evaluation of loan commitments – – – – 105 183 – – 105 183

Basis for evaluation of non-derivative and off-balance assets – – – – 121 16 – – 121 16

Avg. exposure value of loan commitments – – – – 2 21 – – 2 21

Avg. exposure value of non-derivative and off-balance assets – – – – 11 2 – – 11 2







Rating range 7 (Default): 16 – 18





Total

Basis for evaluation of loan commitments 2 2 1,071 1,198 8,740 8,128 – – 9,813 9,328

Basis for evaluation of non-derivative and off-balance assets 0 0 31 124 1,878 2,139 – – 1,908 2,263

Avg. exposure value of loan commitments 0 0 178 158 14 12 – – 32 31

Avg. exposure value of non-derivative and off-balance assets 0 0 5 25 10 11 – – 9 12


3.6.4. ACTUAL SPECIFIC CREDIT RISK ADJUSTMENTS AND ESTIMATES OF LOSSES (IRB APPROACH)

The actual realised specific credit risk adjustments in the lending

business (actual losses) in the current reporting period, the previous

reporting period as well as changes between the periods are disclosed

in Table 29 in accordance with Article 452 subparagraph (g) CRR.

Table 30 shows a comparison of loss estimates with actual losses in the

lending business in accordance with Article 452 subparagraph (i) CRR.

Loss estimates correspond to the expected loss (EL) after minimisa-

tion of the credit risk. The EL for non-defaulting risk assets in the

traditional lending business is shown (e.g. excluding securities in the

banking book and derivatives). Actual loss is defined as follows:

Utilization of SSLP (for balance sheet transactions)

+ Utilization of reserves (for loan commitments and off-balance sheet

assets)

+ direct write-offs

./. recoveries on receivables written off

= actual loss in the lending business

The actual losses in the lending business (IRB approach) in the report-

ing period decreased from € 491 million to € 318 million compared to

the previous year. The figures in the following tables take into account

the Sunrise transaction. For this reason, EL from this transaction and

actual losses which have been reported to the guarantor for review

and approval or already have been settled are not included in the

figures.

[TAB. 29] ACTUAL LOSSES IN THE LENDING BUSINESS IN € M

Actual loss

Exposure class 2016 2015 Difference

01.01.2016 to

31.12.2016

01.01.2015 to

31.12.2015

Central governments and central banks – – –

Institutions – – –

Corporates 318 491 – 173

Equity holding exposures1) – – –

Total 318 491 – 173

1) Only equity holdings under the PD-LGD approach; with regulatory LGD of 65% or 90% and default incl. surcharge for unexpected risks; CCF = 100%


[TAB. 30] EXPECTED LOSSES AND ACTUAL LOSSES IN THE LENDING BUSINESS IN € M

2016 2015 2014 2013

Exposure class

Expected loss (EL) as

at 31.12.2016

Actual loss 01.01.2016

to 31.12.2016

Expected loss (EL) as at

31.12.2015


to 31.12.2015


31.12.2014


to 31.12.2014


31.12.2013


to 31.12.2013

Central governments and central banks 2 – 3 – 3 – 3 –

Institutions 0 – 2 – 2 60 1 –

Corporates 90 318 67 491 53 537 59 447

Equity holding exposures1) 0 – 0 – 0 – 1 –

Total 92 318 72 491 58 597 64 447


3.7. USE OF CREDIT RISK MITIGATION TECHNIQUES

3.7.1. POLICIES AND PROCESSES AS WELL AS THE EXTENT OF ON- AND OFF-BALANCE SHEET NETTING

Banks are able to utilise netting agreements when determining their

required equity capital which lead to a reduction in the evaluation

basis and hence the equity capital required. Policies, processes for and

the extent of on- and off-balance sheet netting are to be disclosed in

accordance with Article 453 subparagraph (a) CRR.

In contrast to balance sheet netting which is not used by

HSH Nordbank, off-balance sheet netting within the framework of

netting agreements for derivatives is applied (see Section 3.3.3). The

market assessment method is used to determine the required net

assessment basis. As at the reporting date HSH Nordbank recorded a

counterparty risk exposure to the amount of approximately € 3 billion

(see Table 19).

3.7.2. PROCESS FOR MANAGING AND RECOGNISING CREDIT RISK MITIGATION

The Collateral Guideline incl. Valuation Guideline as well as the LGD

method issued by the Management Board defines the collateral ap-

proved by HSH Nordbank as recoverable and hence minimising

default risk as well as the qualitative requirements for such collateral.

Hence, it also defines the benchmarks for managing credit risk mitiga-

tion at HSH Nordbank. Disclosure is made in accordance with Arti-

cle 452 subparagraph (b) (iii) CRR. The guidelines are supplemented

by detailed instructions in the process regulations for the lending

business in order to ensure comprehensive collateral management.

The CRR requirements are an integral part of the Collateral Guideline.

Qualitative requirements for collaterals are, first and foremost, legal

enforceability (especially for foreign collateral), an adequate consider-

ation of a correlation between the creditworthiness of the borrower

and the value of the collateral, matching maturities of loan and collat-

eral agreement and the existence of an objective market value.

For these collaterals, the Bank has identified collateral-specific recov-

ery rates based on historical recovery cases, which are used with

recognised collateral in calculating the LGD. The collateral guidelines

establish what assets (e.g. real estate, moveable assets, receivables) and

which collateral instruments (e.g. mortgage, land charge, assignment)

are recognised. In addition, the responsible back office processing and

control department must ensure on a case by case basis that the indi-

vidual collateral and associated collateral agreement meet require-

ments in terms of enforceability and recoverability. In the risk-relevant

lending business, the recoverability of the individual collateral is

reviewed for plausibility as part of the loan decision process.

The decision whether a new asset or new collateral instrument can be

recognised as minimising risk is taken by a team of specialists from

the divisions Credit Risk Management, Group Risk Management and

Legal department.

3.7.3. POLICIES AND PROCESSES FOR COLLATERAL VALUATION AND MANAGEMENT

Valuation and administration of collateral is integrated into the pro-

cess of managing and recognising credit risk reduction techniques in

accordance with Article 453 subparagraph (b) CRR. As the CRR is the

basis for the collateral guidelines, collateral is only treated as reducing

risk for the purpose of calculating capital requirements if all CRR

requirements are satisfied.

For each item of collateral to be offset against risk, an objective market

value is determined. This is done on the basis of HSH Nordbank’s

Valuation Guideline through experts or entities that are independent

of the Market departments of the Bank. The recoverability of an item

of collateral is ensured by recognising it as reducing risk only up to the

specific recovery rate for that collateral. The legal validity and enforce-

ability of the collateral is ensured in the loan and collateral agreements.


There is a standard instruction on regular monitoring and revaluation

of collateral. Besides the annual review of collateral, there is a reevalu-

ation of the market value of the individual items of collateral every

three years. The results of the annual monitoring can lead to a direct

revaluation of the individual collateral in individual cases or for a

segment. For individual collateral objects, there is an annual monitor-

ing and reevaluation of the value (e.g. ships). Recognised collateral is

documented and maintained in a central collateral system. This ena-

bles regular reporting to monitor and evaluate collateral. The recover-

ability of and options for realising an item of collateral are regularly

reviewed as part of the regular credit monitoring process, and more

frequently in the event of wide fluctuations in market value.

In the event of permanent impairment of collateral rights, e.g. im-

pairment in value or a change in the legal position, additional collat-

eral is sought and/or a monitoring file may be opened in accordance

with the guidelines for exposure monitoring in order to initiate the

necessary measures. In the event of a borrower’s default, all collateral

and possibly further collateral of a group of connected clients involved

are revalued. All relevant information on an item of collateral is doc-

umented and updated in the IT system. Only collateral which is rec-

ognised as compliant with the guidelines and accordingly maintained

are used in the steering systems of HSH Nordbank.

Back office specialists are available for prompt and competent realisa-

tion of security in the event of a borrower’s default. Experience with

realising security is incorporated into optimising collateral manage-

ment.

3.7.4. MAIN TYPES OF COLLATERAL AS WELL AS INFORMATION ABOUT MARKET OR CREDIT RISK CONCENTRATIONS WITHIN THE CREDIT MITIGATION TAKEN

In principle, HSH Nordbank takes into account all collateral listed in

the CRR (financial collateral, guarantees, physical collateral, other

IRBA collateral) and netting agreements. Due to the portfolio and

customer structure, HSH Nordbank essentially assumes the following

types of collateral within the meaning of Article 453 subparagraph (c)

CRR:

– Real estate and movable assets, e.g. ships, aircraft, railway wagons

– Receivables and rights

– Guarantees.

In addition, securities, shareholder rights, gold and some credit deriv-

atives serve as collateral.

In the above-mentioned collateral types there are concentrations

within the context of credit risk mitigation as described below in

accordance with Article 452 subparagraph (e) CRR as well as instru-

ments for managing these risks.

The proportion of real estate and ships to total collateral amounts to

three quarters. More than a quarter account for the remaining collat-

eral types. Commercial properties in turn account for about four fifths

of the real estate collateral. Ship collateral is dominated by container

ships which account for more than 40%. Other collateral is composed

primarily of cash collateral and guarantees.

Management of cluster risks from eligible collaterals is done for port-

folios at the level of the Bank as a whole, e.g. by reporting and moni-

toring these risks in the MaRisk report to the Risk Committee. In

addition, it is integrated into strategic planning and limiting by adding

a further limit on the collateral typically associated with the business

areas involved to the planning and limiting for typical business area

related collateral (specifically tangible assets e.g. ships).

Collateral can only be taken into account in calculating LGD if its

risk-reducing effect has not been taken into account in establishing a

rating (PD). This means, for example, that a guarantee or assigned

receivable which has already been taken into account in a rating tool

or through the rating of the guarantor as the bearer of economic risk

or third party debtor cannot in addition be netted against risk as

collateral.

3.7.5. GUARANTORS AND CREDIT DERIVATIVE COUNTERPARTY AND THEIR CREDITWORTHINESS

For a guarantee (or credit derivative) to be recognized as reducing risk

there must be a current internal rating for the guarantor comparable

with at least a Fitch or S & P BB- or Moody’s Ba3.

Within HSH Nordbank, the main types of guarantors within the

meaning of Article 453 subparagraph (d) CRR are guarantees by

central governments, German local and regional administrative au-

thorities, banks and parent companies with first class ratings. The

main counterparties for credit derivatives are internationally active

banks.

3.7.6. COLLATERALISED CRSA AND IRBA EXPOSURE VALUES

The two following tables in accordance with Article 453 subparagraph

(f) and (g) CRR show the credit risk reduction techniques for the

Standard Approach for credit risk and Advanced IRBA, broken down

by exposure class. Securitizations are omitted as they are shown sepa-

rately (see Chapter 4). In the case of the Standard Approach for credit

risk, both financial and tangible security and guarantees are taken into

account. Under advanced IRBA financial, tangible and other collateral

is included in LGD calculation. Guarantees and credit derivatives can

be taken into account either in LGD calculation or through PD substi-

tution. Here, the secured part of the receivables is given the guaran-

tor’s PD. However, collateral taken into account in calculating the PD

is not shown here. Life insurance is accounted for in accordance with

Article 232 CRR.


[TAB. 31] TOTAL AMOUNT OF COLLATERALISED CRSA EXPOSURE VALUES (WITHOUT SECURITISATIONS) IN € M

Financial collateral

Other and physical collateral

Guarantees/ derivatives Life insurance

Exposure class 2016 2015 2016 2015 2016 2015 2016 2015

Central governments or central banks – – – – – – – –

Regional governments or local authorities – – – – – – – –

Public sector entities 246 248 – – – – – –

Multilateral development banks – – – – – – – –

International organisations – – – – – – – –

Institutions 554 1,234 – – – – – –

Corporates 2 10 – – 27 0 0 0

Retail exposures 0 0 – – 13 0 – 0

Exposures secured by mortgages on immovable property – – 7 14 – – – –

Exposures in default – 0 2 5 – – – –

Exposures associated with particular high risk – – – – – – – –

Covered bonds – – – – – – – –

Exposures to institutions and corporates with a short-term credit assessment – – – – – – – –

Units or shares in collective investment undertakings – – – – – – – –

Equity holdings – – – – – – – –

Total 802 1,492 9 19 40 0 0 0

[TAB. 32] TOTAL AMOUNT OF COLLATERALISED IRBA EXPOSURE VALUES (WITHOUT SECURITISATIONS) IN € M

Financial collateral

Other and physical collateral Guarantees/ derivatives Life insurance

Exposure class 2016 2015 2016 2015 2016 2015 2016 2015

Central governments and central banks – – – – – – – –

Institutions 613 712 – 423 107 122 – –

Corporates 1,005 1,538 10,656 10,901 801 549 11 8

Retail exposures – – – – – – – –

Other non credit-obligation assets – – – – – – – –

Equity holdings – – – – – – – –

including: equity exposures using the simple risk weight approach – – – – – – – –

including: equity exposures using the PD-LGD approach – – – – – – – –

including: equity exposures using internal models – – – – – – – –

Total 1,618 2,250 10,656 11,324 908 671 11 8

SECURITISATIONS DISCLOSURE REPORT 45

4.1. NATURE AND EXTENT OF SECURITISATION ACTIVITIES AND RISKS INVOLVED

4.1.1. OBJECTIVES, ROLLES AND EXTENT OF SECURITISATION ACTIVITIES

Securitisations are an important instrument for banks in refinancing,

capital relief and risk management. Companies in the financial sector

can play different roles in a securitisation transaction, transferring

credit risk themselves as originators, managing the portfolio to be

securitised as sponsors in the function of servicers respectively man-

agers, or acquiring securities from the securitisation as investors.

HSH Nordbank is involved in various activities which have securitisa-

tion structures. In this process, HSH Nordbank can take on the roles

of originator, investor and sponsor. Thereby, HSH Nordbank per-

forms one or more of the four roles mentioned on a case-by-case basis.

Securitisation transactions in which HSH Nordbank acts as originator

are used for risk management as well as to obtain liquidity. Overall

risk is managed through strategic sales of selected receivables (tradi-

tional or true sale securitisation) by eliminating or reducing cluster

risk. Furthermore, HSH Nordbank in its role as originator performs

advisory and administrative functions amongst other things for the

special purpose vehicles Carrera as well as tasks concerning the asset

liability control in the function of a manager and also provides credit

lines for this entity. In the reporting period, the new securitisation of

corporate loans Horizon was completed. HSH Nordbank acts as

originator in this transaction.

In addition, HSH Nordbank acted as investor in securitisations spon-

sored by third parties by investing in tranches of securitisations issued

by third parties (e.g. residential mortgage backed securities , commer-

cial mortgage backed securities, collateralised debt obligations). As

part of a strategic reorientation HSH Nordbank enters into any new

business in this business field operated as credit substitution business

only in exceptional cases.

HSH Nordbank assumes the role of sponsor in order to satisfy the

demand for financing alternatives in the small- and medium-sized

customer segment.

As part of its securitisation program HSH Nordbank assumes the role

of sponsor for the special purpose vehicle, Smartfact. HSH Nordbank

undertakes activities of an advisory and administrative nature in this

connection and acts as an intermediary for the receivables purchased

by Smartfact. Furthermore, HSH Nordbank supports the special

purpose vehicle through the provision of funding required for the

purchase by means of a credit line or bearer debenture respectively.

In calculating the exposure values in this chapter, credit risk minimi-

sation techniques involving substitution are generally ignored. There-

fore, the exposure values include the second loss piece of the Sunrise

Transaction. After the deduction of losses as at 31 December 2016

there remains an amount of € 7.5 billion of the initial € 10 billion

second loss piece. Taking into account the at the reporting date not yet

deducted losses the unutilized guarantee amounts to € 6.1 billion.

In the course of credit risk minimisation, the second loss piece as a

financial guarantee is substituted in the IRBA exposure class Central

governments. This guarantee is presented in Table 40.

The securitised portfolio which underlies the Sunrise Transaction

includes foreign currency positions with a share of around 59 % in the

total portfolio. This means that there is a mismatch in currencies

between the guarantee in Euro and part of the hedged portfolio. The

currency fluctuation factor is been applied to the entire Sunrise Trans-

action in accordance with Article 223 (1) sentence 2 CRR and the

second loss piece is measured based on the nominal value of the

guarantee. As at the reporting date the Sunrise Transaction has an

exposure value of € 30.3 billion. This is divided into the senior tranche

(€ 24.2 billion) and the second loss piece (€ 6.1 billion). Furthermore,

HSH Nordbank separates a virtually existing sub-senior tranche of €

0.6 billion from the senior tranche as an option pursuant to Arti-

cle 266 (1) and (3) CRR.

Overall, the CRSA and IRBA exposure value of all securitisation

positions retained or sold by HSH Nordbank (including Sunrise) as at

the reporting date total € 33.8 billion. Receivables securitised where

the Bank acts as originator account for the largest proportion at

€ 33.3 billion, whereas the share of receivables securitised where the

Bank is the investor and sponsor amounts to € 0.4 billion, respectively.

HSH Nordbank held no securitisations in its trading book as at the

reporting date.

4.1.2. TYPES AND EXTENT OF RISKS

Credit risk HSH Nordbank's securitisation transactions are subject to the credit

monitoring processes (in addition to market risk monitoring by

Group Risk Management) with regard to their credit risks (change in

performance and composition of the underlying transactions). By far

the largest share of securitisation transactions are found within di-

vestment portfolio of BU Treasury & Markets. The external service

provider BlackRock, Inc (“BlackRock”) supports the responsible

business units in performing the credit analysis of the positions.

BlackRock acts as the supplier for monitoring required documenta-

tion and models the intrinsic values of the individual positions. The

documents made available by BlackRock are reviewed and subject to

quality assurance in the subsequent process. Finally, decisions are

made with respect to the completed monitoring forms on the basis of

the dual control principle pursuant to loan competences which have

been fixed and which have been published in the Credit Manual.

For purposes of calculating intrinsic values, the cash flow structure of

the underlying assets is first modeled and then applied to the contrac-

4. SECURITISATIONS


tual payment system of the securitisation transactions. These values

are calculated quarterly.

The process described for credit monitoring is likewise suitable for re-

securitisations and securitisations, which is why no further differen-

tiation is made. By means of regularly updating repayment cash flows

and on-going loan monitoring, changes in value of the underlying

receivables are generally reflected directly in the value of the securiti-

sation positions.

Market risk HSH Nordbank’s securitisation transactions are subject to market risk

monitoring with regard to their interest rate risks (changes in interest

rates and credit spreads) and foreign exchange risks. The same applies

in the case of the small number of HSH Nordbank’s own securitisa-

tions in the BU Treasury & Markets. The repayment structure of the

securitisation transactions taking into account termination rights is

first modeled for purposes of determining market risks. Interest rate

and foreign exchange risks are then calculated using the same method

applicable to all trading transactions after taking into account hedge

transactions. The credit spread risks are determined on the basis of

credit spread curves which are purchased from providers of market

data and which are broken down by asset class, rating class and coun-

try.

The process described for market risk monitoring is likewise suitable

for re-securitisations and securitisations, which is why no further

differentiation is made. By means of regularly updating repayment

cash flows and credit spread curves, changes in value of underlying

receivables are generally reflected directly in the value of the securiti-

sation positions to the extent there are no other hedge relationships.

Liquidity risk The following distinction is made for purposes of liquidity risk moni-

toring in relation to securitisations:

– Accounting-related liquidity risks may arise in the form of time lags

(mismatch) between incoming and outgoing cash flows.

– Market-related liquidity risks may arise, for example in cases where

issued bonds cannot be fully placed on the market or where price

losses are realised on the liquidation of assets.

Accounting-related liquidity risks are avoided by coordinating the

fixed / determinable payments over the course of the transactions. If

this cannot be accomplished (e.g. via short-term refinancing via asset

backed commercial paper (ABCP) programs), the market-related

liquidity risks are hedged via liquidity facilities.

Risks due to the ranking of re-securitised receivables The synthetic securitisation transaction Sunrise meets the require-

ments for classification as a re-securitisation as the reference portfolio

underlying the transaction comprises some securitization transactions.

The primary securitisation transactions underlying the Sunrise trans-

action mainly involve securitisations of corporate financings in Eu-

rope and the US, of student loans in the US and residential and com-

mercial property in Europe and the US which are allocated to the

divestment portfolio.

HSH Nordbank has invested primarily in senior and/or high-ranked

tranches of securitisations. The underlying assets likewise consist

primarily of senior loans.

For example, the student loans in the US are largely backed by gov-

ernment guarantee of at least 97 %. In the case of the residential prop-

erties in the US, investments were made almost exclusively, and in the

case of European residential properties a significant but not predomi-

nant share, in loans which are characterised by borrowers with low

creditworthiness.

In addition, there are small re-securitisation portfolios including the

first loss tranche of the Carrera transaction.

Furthermore, HSH Nordbank holds re-securitisation positions as an

investor which is not secured under Sunrise.

4.2. RISK WEIGHTING AND ACCOUNTING OF SECURITISATION TRANSACTIONS

Determination of risk-weighted exposure amounts for securitisation transactions The methods to be used in calculating the regulatory capital for secu-

ritisation positions are stated in the CRR. Under the IRB securitisation

rules, HSH Nordbank uses the ratings-based approach in accordance

with Article 261 CRR, if credit assessments by external providers are

available in the market. The Bank uses the external ratings from S&P,

Moody’s or Fitch. For securities positions which do not have an eligi-

ble external rating HSH Nordbank partially applies the alternative

approaches established in (Article 253 CRR for CRSA securitisation

positions and Article 259 (1) subparagraphs (b) and (c) CRR for IRBA

securitisation positions).

In accordance with Article 266 (3) CRR, there is the option for CRSA

or IRBA securitisation positions for which a risk weight of 1,250 % has

been calculated of making a capital deduction or applying this risk

weight to determine the total counterparty risk capital charge. In the

context of the Sunrise Transaction this option is particularly im-

portant for the treatment of the first loss piece and calculating capital

ratios. From 31 December 2016 on HSH Nordbank deducts the sub-

senior tranche from CET1 in compliance with the option pursuant to

Article 266 (3) CRR. An internal measurement approach for securiti-

sations pursuant to Part 3 Title Two Chapter 5 (3) CRR is currently

not used by HSH Nordbank. Accordingly, no information is disclosed

with regard to Article 449 subparagraph (l) CRR.

The Carrera transaction is a re-securitisation. A look through at the

pool assets is carried out.


By the securitization transactions named Ocean Funding, Stratus and

Castellum, no significant and effective transfer of risk under Arti-

cle 243 CRR is achieved and there is consequently no reduction in

capital requirements. A look-through to the pool assets was per-

formed. The goal of the transactions is to generate collateral objects

eligible for refinancing with the European Central Bank and/or the

generation of liquidity.

The securitisation Promise – shown in Table 33 in 2015 - was termi-

nated. The securitisation activity Horizon is new.

[TAB. 33] DETERMINATION OF RISK-WEIGHTED EXPOSURE FOR RECEIVABLES SECURITISED AS ORIGINATORS

Securitisation activity Type of securitisation Approach Procedure to determine the risk-weighted exposure amounts

Carrera (ABCP-Programme)1) Traditional securitisation IRBA Ratings Based Method (Article 261 CRR)

Castellum Traditional securitisation IRBA Backing of pool assets

Horizon Synthetic securitisation IRBA Formula approach under supervisory law (Article 262 CRR)

Nausola2) Synthetic securitisation IRBA Formula approach under supervisory law (Article 262 CRR)

Neptora2) Synthetic securitisation IRBA Formula approach under supervisory law (Article 262 CRR)

Ocean Traditional securitisation IRBA Backing of pool assets

Stratus Traditional securitisation IRBA Backing of pool assets

Sunrise Synthetic securitisation IRBA Formula approach under supervisory law (Article 262 CRR)

1) Fully hedged as part of the Sunrise transaction 2) Partly hedged as part of the Sunrise transaction

Accounting policies for securitisation activities

Accounting methods Acquired securitisation positions which meet the definition of securi-

ties in the German Ordinance on the Accounting System for Banks

(RechKredV) are recognised and measured in accordance with the

standard methods for securities.

Primary receivables of HSH Nordbank which the Bank allocates to

securitisations without a significant transfer of risk or with regard to

which a transfer is made to Special Purpose Vehicles (SPV) still in-

cluded in the consolidated financial statements, continue to be report-

ed under the original exposure class. Assumption of risks by third

parties is taken into account as collateral when calculating impair-

ments. If the risk has not been transferred through securitisation or if

the guarantee is impaired, the receivable is written down.

Receivables transferred under securitisations are shown as disposals in

the balance sheet.

Sales proceed from reference assets (e.g. loans, promissory notes,

securities) which are a component of a securitisation are accounted

for corresponding to the balance sheet item of the reference asset. In

this manner, sales proceeds are accounted for independent of their

inclusion in a securitisation.

Financial backing for securitisation transactions is provided in the

form of liquidity facilities or guarantees. In the event a draw down is

likely, the risk is covered by creating a provision for contingent losses.

Table 34 illustrates the treatment under supervisory law and the corre-

sponding accounting treatment with regard to a true sale disposal.

[TAB. 34] ACCOUNTING POLICIES FOR RECEIVABLES SECURITISED AS ORIGINATORS

Treatment under supervisory law Treatment under financial accounting

Securitisation transaction True-Sale: Yes/No Approach True Sale Disposal: Yes/No

Carrera (ABCP programme)1) - IRBA -

Castellum Yes - No

Horizon No IRBA -

Nausola2) No IRBA -

Neptora2) No IRBA -

Ocean Yes IRBA No

Stratus Yes IRBA No

Sunrise No IRBA -

1) Fully hedged as part of the Sunrise transaction. 2) Partly hedged as part of the Sunrise transaction


Valuation methods The fair value of securitisation transactions booked to the Restructur-

ing Unit is calculated at least on a monthly basis using market prices.

However, because the securitisation portfolio is almost exclusively

classified as “Loans and receivables,” amortised cost is used for ac-

counting purposes whereas the fair value is merely used in general for

purposes of the explanatory notes to the statement of financial posi-

tion. In the event loan loss provision would be needed, write-downs

are performed to the fair value of the securitisation.

Various market data providers and quotes from other market partici-

pants are used as sources of data. Models are used in cases where no

valid market data is available. If price information is available from

several providers, a procedure for selecting a valid market price is

applied. For quality assurance purposes, all valuation results are vali-

dated by experts.

In addition, HSH Nordbank holds a small number of shares in own

securitisations. Valuation of such holdings is generally performed on

the basis of spread curves.

ECAI used for securitisation The securitisations issued by the HSH Nordbank in the market are

rated externally on a regular basis. The rating agencies used and the

type of receivables underlying the securitisation portfolio are shown in

Table 35 in accordance with Article 449 subparagraph (k) CRR. The

rating agencies used for investment in third party securitisation trans-

actions are shown in Table 16.

[TAB. 35] SECURITISATION TRANSACTIONS INITIATED BY HSH NORDBANK

Securitisation transaction Type of securitisation Type of receivable Rating agency

Carrera (ABCP program)1) Traditional securitisation ABS Moody’s

1) Fully hedged as part of the Sunrise transaction.

4.3. EXPOSURE VALUES AND CAPITAL REQUIREMENTS OF SECURITISED RECEIVABLES

Exposure values of securitised receivables For securitisations, a distinction must be made between securitisa-

tions with transfer of receivables (traditional or true sale securitisa-

tions) and securitisations without transfer of receivables (synthetic

securitisations). Depending on the nature of the securitised receiva-

bles, securitisations are also allocated to different product classes,

which have the characteristics of specific receivables.

In accordance with Article 449 subparagraph (n) (i) CRR, Table 36

shows the exposure value at the reporting date of the securitised

receivables at HSH Nordbank, broken down by securitisation transac-

tion with or without transfer of receivables and the nature of the

securitised receivables. In connection with Article 449 subparagraph (i)

CRR the sponsor exposures of € 315 million comprise on- and off-

balance sheet exposures of € 203 million and € 112 million, respective-

ly.


[TAB. 36] EXPOSURE VALUES OF SECURITISED RECEIVABLES IN € M

Exposure value

Originators Sponsors

Securitisation portfolio 2016 2015 2016 2015

Traditional securitisations

Real estate – – – –

Ships – – – –

Retail banking – – 315 311

ABS – – – –

Other – – – –

Subtotal – – 315 311

Synthetic securitisations


Ships 0 29 – –

Retail banking – – – –

Corporates 3,011 – – –

ABS – – – –

Other – – – –

Sunrise 30,296 44,566 – –

Subtotal 33,307 44,595 – –

Total 33,307 44,595 315 311

Exposure values of retained or purchased securitisation positions In accordance with Article 449 subparagraph (n) (ii), Table 37 shows a

list of the securitisation positions held by the Bank. This includes

retained tranches from the Bank’s own securitisation transactions (e.g.

for the purpose of credit enhancement), liquidity facilities provided by

the Bank for securitisation transactions and investments in third party

securitisation transactions. The reduction in the exposure value of the

Sunrise securitisation results from sales and principal repayments.

[TAB. 37] EXPOSURE VALUES OF RETAINED OR PURCHASED SECURITISATION POSITIONS IN € M

CRSA exposure value IRBA exposure value

Securitisation items 2016 2015 2016 2015

Balance-sheet items

Credit Enhancements1) – – – –

Participations in ABS transactions 28 62 99 100

Other balance-sheet items 321 318 3,011 29

Sunrise – – 30,296 44,566

Subtotal 349 380 33,406 44,695

Off-balance sheet items

Liquidity facilities – – – –

Derivatives – – – –

Other off-balance sheet items – – – –

Subtotal – – – –

Total 349 380 33,406 44,695

1) Measures to improve credit quality


Risk weight ranges and exposure values of securitisations In accordance with Article 449 subparagraph (o) (i) CRR, Table 38

shows the Bank’s individual securitisation positions (see Table 37)

allocated to risk weight ranges, and the resulting capital requirements.

As at the reporting date, all securitisation positions held by

HSH Nordbank as an investor and which would be risk weighted with

1,250 % are deducted from Common Equity Tier 1 capital. This is

equivalent to exercising the option pursuant to Article 266 (3) CRR.

The Sunrise transaction is treated accordingly.

Changes in the securitisation positions are attributable to sales and

repayments, especially in the Sunrise portfolio. In addition, the Sun-

rise Transaction is classified as re-securitisation transaction since 31

December 2011 and hence a minimum risk weight of 20 % has to be

applied. The risk weight of the senior tranche determined in accord-

ance with Article 262 CRR was 24 % as at the reporting date.

[TAB. 38] EXPOSURE VALUES AND CAPITAL REQUIREMENTS FOR RETAINED OR PURCHASED SECURITISATION ITEMS ACC. TO RISK

WEIGHT RANGES IN € M

Securitised items retained/ purchased

Exposure value1 Capital requirements

Securitisation

Re-securitisation Total Securitisation

Re-securitisation Total

Risk weight range in % 2016 2016 2016 2015 2016 2016 2016 2015

CRSA

0 ≤ 10 – – – – – – – –

> 10 ≤ 20 320 – 320 316 5 – 5 5

> 20 ≤ 50 – – – – – – – –

> 50 ≤ 100 – – – 1 – – – 0

> 100 ≤ 350 8 – 8 1 2 – 2 0

> 350 ≤ 650 – – – – – – – –

> 650 < 1.250 – – – – – – – –

1.250 or capital deduction 18 2 21 61 18 2 21 61

Total CRSA 346 2 349 379 25 2 28 66

IRBA

0 ≤ 10 2,981 6,113 9,094 10,000 15 – 15 –

> 10 ≤ 20 – – – 34,566 – – – 528

> 20 ≤ 50 0 23,549 23,549 29 0 449 449 1

> 50 ≤ 100 – – – – – – – –

> 100 ≤ 350 59 – 59 54 14 – 14 12

> 350 ≤ 650 – – – – – – – –

> 650 < 1.250 – – – – – – – –

1.250 or capital deduction 65 638 704 46 40 637 678 20

Total IRBA 3,105 30,300 33,406 44,695 69 1,086 1,156 561

Total 3,451 30,302 33,755 45,074 94 1,088 1,184 627

1) Exposure values and capital requirements for retained or purchased securitisation items acc. to risk weight ranges in € m


Securitisation positions to be deducted from own funds or to be taken into account with a risk weight of 1,250 %

Consistent with Article 449 subparagraph (n) (v) CRR, Table 39 pre-

sents the total of securitisation positions to be deducted from own

funds or to be taken into account with a risk weight of 1,250 %.

[TAB. 39] SECURITISATION POSITIONS TO BE DEDUCTED FROM OWN FUNDS OR TO BE TAKEN INTO ACCOUNT WITH A RISK

WEIGHT OF 1,250 % IN € M

Exposure value1)

Securitisation portfolio 2016 2015

Real estate 20 69

Ships – –

Retail banking – –

ABS 6 6

Other 33 33

Sunrise 634 1,551

Total 693 1,659

1) Prior to exercise of the election under Article 266 (1) and (2) CRR

Hedge transactions Consistent with Article 449 subparagraph (o) (ii) CRR, hedge transac-

tions related to re-securitisations are presented in Table 40. In doing so,

as part of credit risk minimisation, the secondary loss tranche is sub-

stituted as a financial guarantee contract in the IRBA exposure class

Central governments. At the reporting date there are no hedge trans-

actions relating to other securitised positions in accordance with

Article 449 subparagraph (g) CRR and none are planned.

[TAB. 40] RE-SECURITISATION RELATED HEDGE TRANSACTIONS IN € M

Exposure value

2016 2015

Re-securitisation positions prior to hedge 30,302 44,577

Hedge via guarantee 6,113 10,000

Of which: guarantors with ratings AAAA through A 6,113 10,000

Of which: guarantors with s rating below A – –

Hedging using other collateral – –

Re-securitisation positions post-hedge 24,189 34,577

Securitised trading book risk positions The values depicted in Table 41 in accordance with Article 449 sub-

paragraph (q) CRR represent securitised trading book positions

which were taken into account as trading book risk positions for

purposes of measuring required regulatory capital. These positions are

securitised exclusively under Sunrise.


[TAB. 41] SECURITISED TRADING BOOK RISK POSITIONS IN € M

Exposure value

Traditional securitisation Synthetic securitisation

Securitisation portfolio 2016 2015 2016 2015


Ships – – – –


ABS – – – –

Other – – – –

Sunrise – – – –

Total – – – –

Impaired and past due securitisations and actual losses In accordance with Article 449 subparagraph (p) CRR, Table 42 shows

those parts of securitised receivables which are non-performing or in

default and the actual losses in the period under review. The securiti-

sation positions shown are those for which HSH Nordbank acts as

originator. To ensure comparability of data, the definitions of receiva-

bles and actual losses are based on those for general recognition of

non-performing and past due receivables (see Section 3.1.2) and

actual losses (see Section 3.6.4).

[TAB. 42] IMPAIRED AND PAST DUE SECURITISATIONS, ACTUAL LOSSES ON SECURITISED RECEIVABLES IN € M

Total impaired or past due1) Actual losses

Securitisation portfolio 2016 2015 01.01.2016 to

31.12.2016 01.01.2015 to

31.12.2015


Ships – – – –


ABS – – – –

Other – – – –

Sunrise2) 10,642 15,100 3,823 541

Total 10,642 15,100 3,823 541

1) Total impaired securitisations (needing value adjustment) or past due securitisations (not needing value adjustment) 2) The actual losses in the Sunrise transaction are loss allocations under the guarantee which have already been reported to the guarantor for review and approval or have already been settled.

4.4. SECURITISATION ACTIVITIES IN THE REPORTING YEAR AND IMPORTANT CHANGES

Securitisation activities in the reporting year In the reporting year, HSH Nordbank newly organised the synthetic

securitisation transaction Horizon and administrated the transactions

Ocean Funding, Castellum and Stratus.

Synthetic securitisation transaction In the fourth quarter of 2016, largely for capital management reasons,

HSH Nordbank AG securitized loan receivables from the Corporate

Clients and Real Estate Clients areas accounting for a volume of € 3

billion in total. These are solely non-sunrise assets, which are not part

of the sunrise guarantee. By way of a financial guarantee, this involves

the transfer of the default risk associated with a mezzanine tranche

(with an initial amount of € 235 million) to an unconsolidated struc-

tured entity in Luxembourg (Horizon 2016 S.A.), which has, in turn,

passed the default risk on to an investor. The financial resources that

the investor received from the structured entity were deposited as cash

collateral for the guarantee at HSH Nordbank AG.

HSH Nordbank AG in turn provides the structured entity with securi-

ties as collateral for this cash deposit.

A vertical tranche approach is used in accordance with Art. 405 (1a)

CRR. This means that loan receivables are included in the reference

portfolio at a maximum of 95 % of their nominal value. The resulting

first loss piece of at least 5 % is not treated as an additional retained

tranche, but rather as unsecuritized outside of the Horizon transaction


and as ranking pari passu with the securitized share regarding the

allocation of losses.

The use of the financial guarantee allows the risk weighting of the

secured loan portfolio to be reduced. This allows the two following

objectives to be achieved:

– Risk management (reduction of credit risks in the portfolio)

– Relief on equity capital (reduction in regulatory equity capital

requirements)

HSH Nordbank AG pays an annual premium on the respective out-

standing mezzanine tranche. The premium to be paid in each case is

determined primarily by the extent to which the guarantee has actual-

ly been utilized. The premium is recognized through profit or loss in

commission expense. In 2017, the Bank expects to incur premium

expense totaling a maximum of around € 26 million. The contractual

term of the guarantee is 9 years.

As long as and insofar as the cash drawdown of the guarantee is not

yet made through the invoicing of losses that in total exceed the first

loss piece to be borne by HSH Nordbank AG (on the securitized

portfolio) in an initial amount of € 30 million (the aforementioned

first loss piece comprises a first loss tranche of € 22.5 million and an

initial excess spread, i.e. a loss buffer to be determined on an annual

basis, of € 7.5 million), then there is no claim for compensation

against the guarantor that is eligible for capitalization. Against this

background the hedging effect of the financial guarantee recognized

in the balance sheet is accounted for on a net basis. The Bank initially

determines specific and general loan loss provisions without taking

the hedging effect of the financial guarantee into account and then

records the hedging effect (if the first loss piece is exceeded by the

specific and general loan loss provisions) on the face of the balance

sheet through the use of a compensation item, which reduces the

amount recognized under loan loss provisions in the lending business

in the balance sheet accordingly.

The specific and general loan loss provisions recognized are not

changed by the accounting applied to the hedging effect. At the end of

the year, no compensation item was recognized because the specific

and general loan loss provisions did not exceed the initial first loss

piece of € 30 million. The maximum possible hedging/compensation

effect of the guarantee is limited to the volume of the mezzanine

tranche in the amount of € 235 million.

Significant changes to quantitative disclosures Under Article 449 subparagraph (m) CRR significant changes to

quantitative disclosures since the last reporting period are to be ex-

plained. The significant changes since the last reporting period are

mainly attributable to the Sunrise transaction. There were also chang-

es affecting sponsor as well as investment positions.

The reduction in the exposure value of the senior tranche is attributa-

ble to the reduction in the high risk legacy portfolios in the Restruc-

turing Unit. Furthermore, the increases in the loan loss provisions and

losses invoiced had an impact on the quantitative information.

The increase in the exposure values calculated under the Standardised

Approach for credit risk for securitised transactions where the Bank

acts as sponsor is attributable to the increase in the credit lines granted

for the Smartfact special purpose entity. Despite the offsetting net

reduction in investments in securitisations sponsored by third parties

the exposure values under the CRSA increased in total as a result.

Planned securitisation activities According to the business plan for the year 2017, no securitisation

transactions for purposes of a reduction in capital requirements are

planned at present.


5.1. MARKET RISK AND INTEREST RATE RISK

Definition Market risk represents the potential loss that can arise as a result of

adverse changes in market values on positions held in the trading and

banking book. Market movements relevant to the Bank are changes in

interest rates and credit spreads (interest rate risk), exchange rates

(foreign exchange risk), stock prices, indices and fund prices (equity

risk) as well as until the end of 2016 commodity prices (commodity

risk) including their volatilities.

Risk management objectives and policies The risk management objectives and policies for operational risk

pursuant to Article 435 (1) CRR are described in the information

provided in the Group Management Report (Risk Report) in


Capital requirements HSH Nordbank uses standardised methods for determining capital

requirements for market risk for regulatory purposes in accordance

with Part Three Title IV Chapters 2 to 4. An internal risk model as

defined in Part Three Title IV Chapter 5 CRR is not used and a corre-

lation trading portfolio is not maintained.

Capital requirements as at the reporting date resulting from trading

book activities are shown in Table 43 in accordance with Article 445

sentence 1 CRR. Capital requirements are not determined for the

specific interest rate risk on securitised positions, as these are solely

held in the banking book. There are no capital requirements for large

exposures pursuant to Article 92 (3) subparagraph (b) (ii) CRR and

for settlement risk pursuant to Article 92 (3) subparagraph (c) (ii)

CRR as at the reporting date.

During the reporting period, the interest rate risk has decreased from

€ 114 million to € 78 million. In the same period, the foreign exchange

risk has also decreased from € 559 million to € 177 million. The main

reasons for these changes are primarily non-performing loans mainly

denominated in US$ to the hsh portfoliomanagement AöR (Länder)

as at 30 June 2016, as well as the changed consideration of foreign

currency risk from exposures of the sunrise portfolio. Changes in

option risk and interest rate movements also had an effect on market

values of derivatives.

[TAB. 43] CAPITAL REQUIREMENTS FOR MARKET RISK IN € M

Market risk 2016 2015

Interest rate risk 78 114

Including a partial weighting for general price risk 65 94

Including a partial weighting for specific price risk 4 7

Equity price risk 0 5

Foreign-exchange risk 177 559

Commodities risk – –


Large exposure risk – –

Total 255 678

Interest rate risk on positions not held in the trading book Management of the interest rate risk in the banking book is part of

market risk management. Interest rate risk is the potential loss of an

open interest rate position as a result of a possible change in market or

net present value of a stream of payments due to a potential change in

yields or discount factors. Discount factors are taken from the corre-

sponding interest rate curve. For single name bonds and Credit De-

fault Swaps (CDS) credit spreads are also taken into account.

The interest rate risk in the banking book is modeled from the strate-

gic holdings in the HSH Nordbank bank book. There is no modeling

of early loan repayments due to special repayment or termination

rights or investor behavior with deposits from customers. Where

loans are agreed with optional components, existing termination

rights are reported by the front office to Treasury & Markets for entry

in the trading system. Risk measurement and stress testing are done

by the unit Group Risk Management based on the transactions en-

tered in the trading and inventory systems.

The interest rate risk for the bank book arising out of the Bank’s client

business is additionally managed by the business unit Treasury &

Markets. This consists of aggregating the interest rate risk and trans-

ferring it directly to the trading book for the most part in order to

manage this risk within the specified market price risk limits.

5. MARKET RISK, OPERATIONAL RISK AND LIQUIDITY RISK

MARKET RISK, OPERATIONAL RISK AND LIQUIDITY RISK DISCLOSURE REPORT 55

The interest rate risks on the banking book are measured daily. To

calculate the VaR, a confidence level of 99 %, a holding period of one

day and a data history of 250 trading days are used.

Besides daily calculation of the interest rate risk in the course of the

VaR calculation, HSH Nordbank also measures the interest rate risk

for the group as a whole in the event of an interest rate shock. For the

specific analysis of interest rate risks on banking book positions, the

Bank uses net present value analysis, i.e. the net present value change

due to defined changes in interest rates. The figures for the year under

review have shown that HSH Nordbank would lose significantly less

than 20 % of liable capital in the event of an interest rate shock of + 200

and -200 basis points.

The effects of an interest rate shock of + 200 and -200 basis points as at

the reporting date 31 December 2016 in accordance with Article 448

subparagraph (b) CRR are shown in Table 44.

The total amount of € -29/-35 million represents the balance of

changes in present value from the interest rate shocks in the case of

the parallel move in yield curves in all currencies. The interest rate

risk in the banking book is broken down by currency as at the report-

ing date in order to provide greater transparency.

The EUR net present value change results mainly from the new map-

ping of pension obligations to the measuring of market price risks.

The USD net present value change results mainly from the integration

of market risks of the inventory of credit value adjustments of deriva-

tives.

[TAB. 44] INTEREST RATE RISK IN THE BANKING BOOK IN € M

Change in net present value

+ 200 bp -200 bp

Currency 2016 2015 2016 2015

EUR – 135 – 287 – 107 79

USD 89 – 24 59 216

CHF – 1 – 3 1 –

JPY 8 5 7 13

GBP 12 3 5 12

DKK – 2 – 2 – 1

Other – – 1 – – 1

Total – 29 – 309 – 35 320

5.2. OPERATIONAL RISK

Definition HSH Nordbank defines operational risk (OpRisk) as the risk of direct

or indirect losses caused by the inappropriateness or failure of the

internal infrastructure, internal procedures or staff or as a result of

external factors (risk categories). This definition thereby refers to

threats of damages resulting from legal risk and compliance risk.


to Article 435 (1) CRR are described in the information provided in

the Group Management Report (Risk Report) in HSH Nordbank's

Annual Report. This definition includes legal risk and compliance risk.

Capital requirements HSH Nordbank applies exclusively the Standardised Approach in

order to determine the capital requirements for operational risk. A

description of the method according to Article 312 (2) CRR is there-

fore not provided. On the date of reporting, the sub-group had a

regulatory capital requirement to the amount of € 135 million and the

holding to the amount of € 104 million.


[TAB. 45] CAPITAL REQUIREMENTS FOR OPERATIONAL RISK FOR THE SUB-GROUP IN € M

Operational risk 2016 2015

According to Standardised Approach 135 157

Total 135 157

[TAB. 46] CAPITAL REQUIREMENTS FOR OPERATIONAL RISK FOR THE HOLDING IN € M

Operational risk 2016 2015

According to Standardised Approach 104 –

Total 104 –

5.3. LIQUIDITY RISK

Definition HSH Nordbank divides its liquidity risk into risk of insolvency and

liquidity maturity transformation risk.

The risk of insolvency refers to the risk that present or future payment

obligations cannot be met in part or in full. This is referred to as

liquidity risk in the narrower sense. The key driver of this liquidity

risk is the cash flow structure in the liquidity development report

which is determined by the assets (maturity/currency structure) and

liabilities (funding structure by maturity/currency/investor). In this

regard the market liquidity risk, i. e. the danger that transactions

cannot be sold or only at unfavourable conditions because of a lack of

market depth, is reflected in the liquidity development report as a

component of the insolvency risk. Another component of insolvency

risk is the refinancing risk, i. e. the danger of not being able to obtain

liquidity or not at the expected conditions if required.

The refinancing risk is determined by the refinancing structure. In-

formation on the refinancing structure can be found in Note 54 of the

consolidated notes “Residual maturity breakdown of financial instru-

ments”.

Liquidity maturity transformation risk refers to the risk that a loss will

result from a mismatch in the contractual maturities of assets and

liabilities, the so-called liquidity maturity transformation position, and

from the change in the Bank’s refinancing surcharge.


to Article 435 (1) CRR are described in the information provided in

the Group Management Report (Risk Report) in HSH Nordbank's

Annual Report.

UNENCUMBERED ASSETS DISCLOSURE REPORT 57

Definition HSH Nordbank follows the guidelines on disclosure of encumbered

and unencumbered assets (EBA/GL/2014/03) dated 27 June 2014 and

the circular regarding the implementation of the EBA guidelines on

disclosure of encumbered and unencumbered assets (BA 06/2016)

dated 30 August 2016 for the disclosure of unencumbered assets in

accordance with Article 443 CRR.

Pursuant to Article 100 CRR in conjunction with the Implementing

Technical Standards on Asset Encumbrance Reporting

(EBA/ITS/2013/04/rev1) dated 24 July 2014 HSH Nordbank is also

required to report all forms of encumbrance of assets as part of CoRep

since 31 December 2014.

According to the EBA definition, assets are considered to be encum-

bered or committed if they are not available to the institution for

further fundraising. This is always the case if they are pledged or lent,

i.e. are used to safeguard own loans and securities or collateralize

potential obligations arising in the derivatives business (netting and

collateral arrangements) as part of on- or off-balance sheet transac-

tions.

The median of the encumbrance ratio is 33 % for the regulatory

Group within the reporting year. The figures for encumbered and

unencumbered assets do not vary significantly between the sub-group

and the holding. Therefore only the sub-group data will be shown in

this chapter.

Information on the level of encumbrance The encumbrance ratio in accordance with Article 100 CRR in the

first instance fell but stabilised in the course of the year. Covered as

well as uncovered liabilities similarly fell during the year, whereas the

share of encumbered assets was stable during the last three quarters of

the year.

Most (approximately 84 %) of the encumbered assets and collateral

received result from the provision of collateral and netting agreements

relating to derivative transactions as well as from issuing covered

bonds (cover pool), development bank transactions and ABF transac-

tions as well as the provision of collateral and netting agreements

related to derivative transactions.

The other encumbered assets are distributed between the provision of

collateral for payment transaction lines and collateral for repurchase

agreements and securities lending transactions. As at 31 December

2016 the financial assets of derivatives in consideration of balance

sheet netting with securities are considered.

Over 88 % of all encumbered assets at Group level are allotted to

transactions of HSH Nordbank AG.

An overcollateralisation of covered bonds, ABF transactions und

repurchase agreements concerning the refinancing exists on a consid-

erable scale.

The provision and acceptance of collaterals is based essentially on

standardized contracts of repo transactions and on collateralisation of

future contracts. Moreover, the bank concludes individual collateral

agreements within the framework of ABF transactions or within deals

with state development banks.

HSH Nordbank provides different types of collateral for several busi-

ness purposes, the majority of which consists of cash collateral of

€ 3 billion for the derivative as well as in part of the development bank

business. Furthermore, beside € 1 billion of (commercial) loans an

additional € 1 billion of securities are pledged as collateral for payment

transaction lines and trading lines. The cover pools and the rating-

related surplus as well as the issuable free surplus are disclosed as

encumbered assets as part of the Pfandbrief business (public sector

Pfandbriefe register, mortgage and ship Pfandbriefe register).

Unencumbered other assets are disclosed in table 47 in addition to

unencumbered debt and equity instruments.

Besides the Sunrise-compensation the disclosed amount of other

unencumbered assets of in the median approx. € 13 billion divides

mainly into the following categories: 54 % receivables arising from the

derivatives business, 12% for the up for sale portfolio and 6% latent

tax claims. At the year end, this position increased by the up for sale

portfolio.

6. UNENCUMBERED ASSETS


[TAB. 47] ASSETS IN € M

Carrying amount of encumbered assets

Fair value of encumbered assets

Carrying amount of unencumbered assets

Fair value unencumbered assets

010 040 060 090

2016 2015 2016 2015 2016 2015 2016 2015

010 Assets of the reporting institution 29,466 34,534 – – 60,565 74,301 – –

030 Equity instruments – – – – 170 306 212 367

040 Debt instruments 2,680 3,614 2,738 3,702 15,305 16,040 15,035 15,516

120 Other assets 4,212 4,954 – – 13,365 10,330 – –

[TAB. 48] COLLATERAL RECEIVED IN € M

Fair value of encumbered collateral received and own

debt instruments issued

Fair value of collateral received and own debt instruments issued that are eligiblefor encumbrance

010 040

2016 2015 2016 2015

130 Collateral received from the reporting institution 528 875 295 1,108

150 Equity instruments – – – –

160 Debt instruments 528 875 295 1,108

230 Other collateral received – – – –

240 Other own debt instruments issued as Pfandbriefe or ABS – – 1,349 1,066

[TAB. 49] ENCUMBERED ASSETS/ COLLATERAL RECEIVED AND ASSOCIATED LIABILITIES IN € M

Coverage of liabilities,

contingent liabilities or securities lent

Assets, collateral received and other own debt instruments

issued as en-cumbered Pfandbriefe and ABS

010 030

2016 2015 2016 2015

010 Carrying amount of selected liabilities 24,034 27,023 26,350 30,141

LEVERAGE RATIO DISCLOSURE REPORT 59

Definition According to Article 451 CRR in connection with Title VII no. 23

subparagraph (c) and no. 26 subparagraph b of the guideline on dis-

closure frequency (EBA/GL/2014/14), information on the leverage

ratio are to be disclosed. The calculation of the leverage ratio is per-

formed in accordance with Article 429 CRR in connection with the

commission implementing regulation (EU) 2016/200 of 15 February

2016 laying down implementing technical standards regarding the

disclosure of the leverage ratio for institutions according to the Regu-

lation (EU) No. 575/2013 of the European Parliament and of the

Council.

In the frame of the Basel III framework (CRR/CRD IV), the leverage

ratio complements the risk based capital requirements as a non-risk

based debt ratio. The leverage ratio is the quotient of the Tier 1 capital

and the overall risk measurement position and is indicated as a per-

centage. The overall risk measurement position consists of the nomi-

nal value of the asset and off-balance sheet business (incl. derivatives)

under special consideration of relevant valuation approaches especial-

ly for leverage ratio. At the present time, the leverage ratio is an obser-

vation parameter. As a reference value, the Basel Committee of Bank-

ing Regulation determined a minimum leverage ratio of 3 % in the

Basel III leverage ratio framework and disclosure requirements of

January 2014. At the earliest from 2019 onwards the leverage ratio will

be implemented as an additional minimum capital ratio.

Information on the level of leverage ratio The following tables derive the leverage ratio separately for the sub-

group and the holding pursuant to the above mentioned legal basis. In

accordance with Article 499 (2) CRR, the option was utilised in order

to determine the Tier 1 capital on the basis of the Basel III transitional

regulations according to Article 499 (1) subparagraph b CRR.

Information on the level of leverage ratio for the sub-group As at the reporting date, the leverage ratio of the sub-group amounts

to 6.9 %.

[TAB. 50] LRSUM: SUMMARY RECONCILIATION OF ACCOUNTING ASSETS AND LEVERAGE RATIO EXPOSURES IN € M FOR THE

SUB-GROUP

Applicable Amounts

2016

1 Total assets as per published financial statements 84,365

2 Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation 843

3

(Adjustment for fiduciary assets recognised on the balance sheet pursuant to the applicable accounting framework but excluded from the leverage ratio exposure measure in accordance with Article 429(13) of Regulation (EU) No 575/2013 "CRR") framework but excluded from the leverage ratio exposure measure according to Article 429(11) of Regulation (EU) NO. 575/2013 –

4 Adjustments for derivative financial instruments – 3,147

5 Adjustments for securities financing transactions "SFTs" – 265

6 Adjustment for off-balance sheet items (ie conversion to credit equivalent amounts of off-balance sheet exposures) 4,734

EU-6a (Adjustment for intragroup exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (7) of Regulation (EU) No 575/2013) –

EU-6b (Adjustment for exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (14) of Regulation (EU) No 575/2013) –

7 Other adjustments – 9,559

8 Total leverage ratio exposure 76,971

7. LEVERAGE RATIO


[TAB. 51] LRCOM: LEVERAGE RATIO COMMON DISCLOSURE IN € M FOR THE SUB-GROUP

CRR leverage ratio

exposures

2016

On-balance sheet exposures (excluding derivatives and SFTs)

1 On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including collateral) 70,132

2 (Asset amounts deducted in determining Tier 1 capital) – 955

3 Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets) (sum of lines 1 and 2) 69,177

Derivative exposures

4 Replacement cost associated with all derivatives transactions (ie net of eligible cash variation margin) 1,850

5 Add-on amounts for PFE associated with all derivatives transactions (mark-to-market method) 769

EU-5a Exposure determined under Original Exposure Method –

6 Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the applicable accounting framework –

7 (Deductions of receivables assets for cash variation margin provided in derivatives transactions) – 348

8 (Exempted CCP leg of client-cleared trade exposures) –

9 Adjusted effective notional amount of written credit derivatives 76

10 (Adjusted effective notional offsets and add-on deductions for written credit derivatives) – 23

11 Total derivatives exposures (sum of lines 4 to 10) 2,324

Securities financing transaction exposures

12 Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions 368

13 (Netted amounts of cash payables and cash receivables of gross SFT assets) –

14 Counterparty credit risk exposure for SFT assets 368

EU-14a Derogation for SFTs: Counterparty credit risk exposure in accordance with Article 429b (4) and 222 of Regulation (EU) No 575/2013 Articles 429b(4) and 222 of Regulation (EU) No 575/2013 –

15 Agent transaction exposures –

EU-15a (Exempted CCP leg of client-cleared SFT exposure) –

16 Total securities financing transaction exposures (sum of lines 12 to 15a) 736

Other off-balance sheet exposures

17 Off-balance sheet exposures at gross notional amount 12,643

18 (Adjustments for conversion to credit equivalent amounts) – 7,909

19 Other off-balance sheet exposures (sum of lines 17 and 18) 4,734

Exempted exposures in accordance with CRR Article 429 (7) and (14) (on and off balance sheet)

EU-19a (Exemption of intragroup exposures (solo basis) in accordance with Article 429(7) of Regulation (EU) No 575/2013 (on and off balance sheet)) –

EU-19b (Exposures exempted in accordance with Article 429 (14) of Regulation (EU) No 575/2013 (on and off balance sheet)) –

Capital and total exposures

20 Tier 1 capital 5,292

21 Total leverage ratio exposures (sum of lines 3, 11, 16, 19, EU-19a and EU-19b) 76,971

Leverage ratio

22 Leverage ratio 6.9%

Choice on transitional arrangements and amount of derecognised fiduciary items

EU-23 Choice on transitional arrangements for the definition of the capital measure transitional

EU-24 Amount of derecognised fiduciary items in accordance with Article 429(11) of Regulation (EU) No 575/2013 –


[TAB. 52] LRSPL: SPLIT-UP OF ON BALANCE SHEET EXPOSURES (EXCLUDING DERIVATIVES, SFTS AND EXEMPTED EXPOSURES) IN

€ M FOR THE SUB-GROUP

CRR leverage ratio expo

sures

2016

EU-1 Total on-balance sheet exposures (excluding derivatives, SFTs, and exempted exposures), of which: 68,007

EU-2 Trading book exposures 368

EU-3 Banking book exposures, of which: 67,639

EU-4 Covered bonds 214

EU-5 Exposures treated as sovereigns 19,221

EU-6 Exposures to regional governments, MDB, international organisations and PSE not treated as sovereigns 521

EU-7 Institutions 1,001

EU-8 Secured by mortgages of immovable properties 8,885

EU-9 Retail exposures 60

EU-10 Corporate 20,752

EU-11 Exposures in default 8,719

EU-12 Other exposures (eg equity, securitisations, and other non-credit obligation assets) 8,266

[TAB. 53] LRQUA: FREE FORMAT TEXT BOXES FOR DISCLOSURE ON QUALITATIVE ITEMS FOR THE SUB-GROUP Column

Row Free format

1

Description of processes used to manage the risk of excessive leverage

On the one hand, an ongoing supervision of the leverage ratio as at the reporting date (current state) and on the other hand, on a proactive perspective (forecast) is ensured. Moreover, in the frame of the stress tests, the development of the leverage ratio for various crisis scenarios is analysed. As a constraint, the compliance with the leverage ratio is considered in the annual corporate planning. The control of the leverage ratio can be adjusted inter alia with a balance limitation as required. The current amount of the leverage ratio, however, leads to expect that with the introduction of a compulsory leverage ratio that has to be met, there are no adjustments needed for the core capital and overall risk measurement position.

2

Description of factors that had an impact on the leverage ratio during the period to which the disclosed leverage ratio refers

The leverage ratio amounts to 6.9 % and falls by 0.3 percentage points short of the value as of 30.06.2016 (7.2 %). The slight decrease can be referred to a reduction of the Tier 1 capital, which was higher than the decrease of the denominator of the leverage ratio. The denominator fall due to a portfolio reduction. For information on the numerator see section 2.1. Own funds. There existed no important external factors in connection with the economic and financial environment that had influence on the leverage ratio.


Information on the level of leverage ratio for the holding

As at the reporting date, the leverage ratio of the holding amounts to

3.5 %.

[TAB. 54] LRSUM: SUMMARY RECONCILIATION OF ACCOUNTING ASSETS AND LEVERAGE RATIO EXPOSURES IN € M FOR THE

HOLDING

Applicable Amounts

2016

1 Total assets as per published financial statements 82,869

2 Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation 843

3

(Adjustment for fiduciary assets recognised on the balance sheet pursuant to the applicable accounting framework but excluded from the leverage ratio exposure measure in accordance with Article 429(13) of Regulation (EU) No 575/2013 "CRR") framework but excluded from the leverage ratio exposure measure according to Article 429(11) of Regulation (EU) NO. 575/2013 –

4 Adjustments for derivative financial instruments – 3,147

5 Adjustments for securities financing transactions "SFTs" – 265

6 Adjustment for off-balance sheet items (ie conversion to credit equivalent amounts of off-balance sheet exposures) 4,734

EU-6a (Adjustment for intragroup exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (7) of Regulation (EU) No 575/2013) –

EU-6b (Adjustment for exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (14) of Regulation (EU) No 575/2013) –

7 Other adjustments – 7,992

8 Total leverage ratio exposure 77,042


[TAB. 55] LRCOM: LEVERAGE RATIO COMMON DISCLOSURE IN € M FOR THE HOLDING

CRR leverage ratio

exposures

2016

On-balance sheet exposures (excluding derivatives and SFTs)

1 On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including collateral) 70,345

2 (Asset amounts deducted in determining Tier 1 capital) – 1,097

3 Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets) (sum of lines 1 and 2) 69,248

Derivative exposures

4 Replacement cost associated with all derivatives transactions (ie net of eligible cash variation margin) 1,850

5 Add-on amounts for PFE associated with all derivatives transactions (mark-to-market method) 769

EU-5a Exposure determined under Original Exposure Method –

6 Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the applicable accounting framework –

7 (Deductions of receivables assets for cash variation margin provided in derivatives transactions) – 348

8 (Exempted CCP leg of client-cleared trade exposures) –

9 Adjusted effective notional amount of written credit derivatives 76

10 (Adjusted effective notional offsets and add-on deductions for written credit derivatives) – 23

11 Total derivatives exposures (sum of lines 4 to 10) 2,324

Securities financing transaction exposures

12 Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions 368

13 (Netted amounts of cash payables and cash receivables of gross SFT assets) –

14 Counterparty credit risk exposure for SFT assets 368

EU-14a Derogation for SFTs: Counterparty credit risk exposure in accordance with Article 429b (4) and 222 of Regulation (EU) No 575/2013 Articles 429b(4) and 222 of Regulation (EU) No 575/2013 –

15 Agent transaction exposures –

EU-15a (Exempted CCP leg of client-cleared SFT exposure) –

16 Total securities financing transaction exposures (sum of lines 12 to 15a) 736

Other off-balance sheet exposures

17 Off-balance sheet exposures at gross notional amount 12,643

18 (Adjustments for conversion to credit equivalent amounts) – 7,909

19 Other off-balance sheet exposures (sum of lines 17 and 18) 4,734

Exempted exposures in accordance with CRR Article 429 (7) and (14) (on and off balance sheet)

EU-19a (Exemption of intragroup exposures (solo basis) in accordance with Article 429(7) of Regulation (EU) No 575/2013 (on and off balance sheet)) –

EU-19b (Exposures exempted in accordance with Article 429 (14) of Regulation (EU) No 575/2013 (on and off balance sheet)) –

Capital and total exposures

20 Tier 1 capital 2,687

21 Total leverage ratio exposures (sum of lines 3, 11, 16, 19, EU-19a and EU-19b) 77,042

Leverage ratio

22 Leverage ratio 3.5%

Choice on transitional arrangements and amount of derecognised fiduciary items

EU-23 Choice on transitional arrangements for the definition of the capital measure transitional

EU-24 Amount of derecognised fiduciary items in accordance with Article 429(11) of Regulation (EU) No 575/2013 –


[TAB. 56] LRSPL: SPLIT-UP OF ON BALANCE SHEET EXPOSURES (EXCLUDING DERIVATIVES, SFTS AND EXEMPTED EXPOSURES) IN

€ M FOR THE HOLDING

CRR leverage ratio expo

sures

2016

EU-1 Total on-balance sheet exposures (excluding derivatives, SFTs, and exempted exposures), of which: 68,220

EU-2 Trading book exposures 368

EU-3 Banking book exposures, of which: 67,852

EU-4 Covered bonds 214

EU-5 Exposures treated as sovereigns 19,221

EU-6 Exposures to regional governments, MDB, international organisations and PSE not treated as sovereigns 521

EU-7 Institutions 1,214

EU-8 Secured by mortgages of immovable properties 8,885

EU-9 Retail exposures 60

EU-10 Corporate 20,752

EU-11 Exposures in default 8,719

EU-12 Other exposures (eg equity, securitisations, and other non-credit obligation assets) 8,266

[TAB. 57] LRQUA: FREE FORMAT TEXT BOXES FOR DISCLOSURE ON QUALITATIVE ITEMS FOR THE HOLDING Column

Row Free format

1

Description of processes used to manage the risk of excessive leverage

On the one hand, an ongoing supervision of the leverage ratio as at the reporting date (current state) and on the other hand, on a proactive perspective (forecast) is ensured. Moreover, in the frame of the stress tests, the development of the leverage ratio for various crisis scenarios is analysed. As a constraint, the compliance with the leverage ratio is considered in the annual corporate planning. The control of the leverage ratio can be adjusted inter alia with a balance limitation as required.

2

Description of factors that had an impact on the leverage ratio during the period to which the disclosed leverage ratio refers

The leverage ratio was 3.5%. For information on the numerator see section 2.1. Own funds. There existed no important external factors in connection with the economic and financial environment that had influence on the leverage ratio.

COUNTERCYCLICAL CAPITAL BUFFER DISCLOSURE REPORT 65

8. COUNTERCYCLICAL CAPITAL BUFFER

8.1. GEOGRAPHICAL BREAKDOWN OF RELEVANT CREDIT EXPOSURES

Pursuant to Article 440 CRR the geographical break down of relevant

credit exposures and the amount of the countercyclical capital buffer

(CCB) will be disclosed in this report.

The disclosure of the geographical breakdown of credit exposures

pursuant to Article 440 (1) subparagraph a CRR in connection with

Article 2 of the delegated act (EU) 2015/1555 is shown in Table 58.

The breakdown by countries is based on the jurisdiction of the busi-

ness partners in the HSH Nordbank portfolio. The breakdown of the

relevant exposure does not include the public sector or institutions.

This applies for both Standard- and IRB-Approach.

The exposure is disclosed in columns 010 to 065 divided into general

credit exposure, trading book exposure and securitisation exposure.

The corresponding own funds requirements are displayed in columns

070 to 100. In column 110 the own funds requirements weights are

shown, which apply to every country specific ratio for the CCB. The

ratio results from the sum of own funds per country divided by the

sum of all own funds requirements of the relevant credit exposures. In

column 120 the CCB-rate of each country is shown. These have to be

published by the countries themselves and apply for one year.

The CCB disclosure of HSH Nordbank differs from the table shown

in annex 1 of delegated act (EU) 2015/1555:

– Column 040 is not disclosed, since HSH Nordbank does not use

any internal models for market risk

– In order to achieve compliance of regulatory disclosure and regula-

tory reporting on the CCB, columns 065 and 095 for “other assets,

without credit obligations” are added.

Geographical breakdown of relevant credit exposures for the calculation of the CCB The geographical breakdown is identical for the sub-group and the

holding.


[TAB. 58] GEOGRAPHICAL BREAKDOWN OF RELEVANT CREDIT EXPOSURES FOR THE CALCULATION OF THE CCB

general credit exposures

trading book expo-sures

securitisation exposures other own funds requirements

Break-down by coun-try:

general credit expo-sures (SA)

general credit

exposures (IRB)

Sum of long and short positi-ons of trading book expo-sures

Securi-tisation expo-sures (SA)

Securi-tisation expo-sures (IRB)

other assets, without credit oblige-tions

general credit expo-sures

trading book expo-sures

Securi-tisation expo-sures

other assets, without credit oblige-tions total

own funds

requirements

weights CCB rate

010 020 030 050 060 65 070 080 090 95 100 110 120

(AT) – 140 0 – – – 8 0 – – 8 0.01 0.00%

(AU) 0 0 – – – – 0 – – – 0 0.00 0.00%

(BE) 0 191 0 – – – 6 0 – – 6 0.00 0.00%

(BM) 0 83 0 – – – 2 0 – – 2 0.00 0.00%

(CH) 0 329 1 – – – 25 0 – – 25 0.01 0.00%

(DE) 162 16,285 332 – 26,561 178 649 1 464 14 1,127 0.67 0.00%

(DK) 0 171 2 – – – 5 0 – – 5 0.00 0.00%

(ES) 0 312 2 – 3 – 13 0 – – 13 0.01 0.00%

(FI) 0 315 0 – – – 8 0 – – 8 0.00 0.00%

(FR) 1 1,137 22 – – – 22 1 – – 23 0.01 0.00%

(GB) 59 1,020 9 12 – – 27 0 2 – 29 0.02 0.00%

(IE) 21 163 1 – – – 5 0 – – 5 0.00 0.00%

(IT) 62 193 1 – – – 11 0 – – 11 0.01 0.00%

(LU) 162 2,152 2 320 57 – 80 0 19 – 98 0.06 0.00%

(NL) 0 1,107 9 – – – 23 1 – – 24 0.01 0.00%

(NO) – 295 1 – – – 9 0 – – 9 0.01 1.50%

(PT) – 13 – – – – 1 – – – 1 0.00 0.00%

(QA) – 22 – – 0 – 0 – 0 – 0 0.00 0.00%

(SE) 0 94 2 – – – 7 0 – – 7 0.00 1.50%

(US) 11 1,217 6 17 39 72 20 0 0 1 20 0.01 0.00%

Other – – – – – 102 – – – 8 8 0.00 0.00%

(AE) 0 3 – – – – 0 – – – 0 0.00 0.00%

(AG) 0 – – – – – 0 – – – 0 0.00 0.00%

(BH) 9 – – – – – 1 – – – 1 0.00 0.00%

(BR) – 22 – – – – 6 – – – 6 0.00 0.00%

(CY) 0 321 – – – – 17 – – – 17 0.01 0.00%

(DZ) – – – – – – – – – – – – 0.00%

(EE) – 34 – – – – 1 – – – 1 0.00 0.00%

(GI) 0 – – – – – 0 – – – 0 0.00 0.00%

(GR) 0 185 – – – – 11 – – – 11 0.01 0.00%

(HK) 1 74 – – – – 4 – – – 4 0.00 0.63%

(HR) – 60 – – – – 4 – – – 4 0.00 0.00%

(IM) 0 73 – – – – 3 – – – 3 0.00 0.00%

(IS) – – – – – – – – – – – – 0.00%

(JE) – 392 – – – – 21 – – – 21 0.01 0.00%

(KN) 0 – – – – – 0 – – – 0 0.00 0.00%

(KR) – 7 – – – – 0 – – – 0 0.00 0.00%

(KY) 40 36 – – – – 10 – – – 10 0.01 0.00%

(LR) 0 540 – – – – 27 – – – 27 0.02 0.00%

(MH) 0 866 – – – – 73 – – – 73 0.04 0.00%

COUNTERCYCLICAL CAPITAL BUFFER DISCLOSURE REPORT 67

(MT) 0 20 – – – – 1 – – – 1 0.00 0.00%

(PA) 0 28 – – – – 2 – – – 2 0.00 0.00%

(PL) – 2 – – – – 0 – – – 0 0.00 0.00%

(SD) – – – – – – – – – – – – 0.00%

(SG) 0 567 – – – – 21 – – – 21 0.01 0.00%

(TH) 0 6 – – – – 0 – – – 0 0.00 0.00%

(TN) 0 – – – – – 0 – – – 0 0.00 0.00%

(TR) 0 326 – – – – 22 – – – 22 0.01 0.00%

(TW) – 0 – – – – 0 – – – 0 0.00 0.00%

(VG) 0 140 – – – – 4 – – – 4 0.00 0.00%

(VN) – – – – – – – – – – – – 0.00%

(CA) 0 – – – – – 0 – – – 0 0.00 0.00%

(EG) 0 – – – – – 0 – – – 0 0.00 0.00%

(PH) – – – – – – – – – – – – 0.00%

(IN) – 38 – – – – 2 – – – 2 0.00 0.00%

(JP) – 14 – – – – 1 – – – 1 0.00 0.00%

(MY) – – – – – – – – – – – – 0.00%

(BS) – 23 – – – – 1 – – – 1 0.00 0.00%

(CN) – 4 – – – – 0 – – – 0 0.00 0.00%

(CW) – 0 – – – – 0 – – – 0 0.00 0.00%

(HU) – 72 – – – – 8 – – – 8 0.00 0.00%

(IL) – 37 – – – – 2 – – – 2 0.00 0.00%

(SA) – 50 – – – – 5 – – – 5 0.00 0.00%

(BB) – 29 – – – – 3 – – – 3 0.00 0.00%

(BG) – – – – – – – – – – – – 0.00%

(CL) – – – – – – – – – – – – 0.00%

(CZ) – 0 – – – – 0 – – – 0 0.00 0.00%

(GG) – – – – – – – – – – – – 0.00%

(JO) – 0 – – – – 0 – – – 0 0.00 0.00%

(KW) – 0 – – – – 0 – – – 0 0.00 0.00%

(MA) – – – – – – – – – – – – 0.00%

(NG) – 1 – – – – 0 – – – 0 0.00 0.00%

(NZ) – 3 – – – – 0 – – – 0 0.00 0.00%

(OM) – 0 – – – – 0 – – – 0 0.00 0.00%

Total 528 29,206 391 349 26,660 353 1,171 4 485 23 1,683 1.00 –


8.2. AMOUNT OF COUNTERCYCLICAL CAPITAL BUFFER

The following tables show the CCB for the sub-group and the holding.

[TAB. 59] CCB SUB-GROUP Total risk exposure amount (€ million) 28,579.6

Institution specific countercyclical capital buffer rate (%) 0.016

Institution specific countercyclical capital buffer requirement (€ million) 4.6

[TAB. 60] CCB HOLDING Total risk exposure amount (€ million) 27,675.8

Institution specific countercyclical capital buffer rate (%) 0.016

Institution specific countercyclical capital buffer requirement (€ million) 4.5

NOTES DISCLOSURE REPORT 69

9.1. CONSOLIDATION MATRIX

[TAB. 61] CONSOLIDATION MATRIX

Treatment under supervisory law Consolidation under IFRS

Consolidation

Type of company / company full proportional Deduction

method

Risk-weighted (equity

holding/ SPV) full at-equity

FI HSH Beteiligungs Management GmbH X

CI HSH Nordbank Securities S.A. X X

FI 4Wheels Management GmbH X

FI Asian Capital Investment Opportunities Limited X

FI Avia Management S.à.r.l X X

FI BINNENALSTER-Beteiligungsgesellschaft mbH X X

FI BRINKHOF Holding Deutschland GmbH X

FI Bu Wi Beteiligungsholding GmbH X X

FI CAPCELLENCE Dritte Fondsbeteiligung GmbH X X

FI CAPCELLENCE Erste Fondsbeteiligung GmbH X X

FI Capcellence Holding GmbH & Co. KG X X

FI Capcellence Vintage Year 06/07 Beteiligungen GmbH & Co. KG X X

FI Capcellence Vintage Year 07/08 Beteiligungen GmbH & Co. KG X X

FI Capcellence Vintage Year 11 Beteiligungen GmbH & Co. KG X X

FI CAPCELLENCE Vintage Year 13 Beteiligungen GmbH & Co. KG X X

FI CAPCELLENCE Vintage Year 16 Beteiligungen GmbH & Co. KG X X

FI CAPCELLENCE Zweite Fondsbeteiligung GmbH X X

FI European Capital Investment Opportunities Limited X

FI FSL Holdings Pte. Ltd. X X

FI GmbH Altstadt Grundstücksgesellschaft X X

FI GODAN GmbH X X

FI HSH Auffang- und Holdinggesellschaft mbH & Co. KG X X

FI HSH N Finance (Guernsey) Limited X X

FI HSH N Funding II X X

FI HSH Private Equity GmbH X X

FI Ilex Integra GmbH X X

FI Kontora Kapitalverwaltungs GmbH X

FI Kontora Verwaltungs GmbH X

FI Lyceum Capital Fund 2000 (Number Five) GmbH & Co. KG X

FI Neptune Finance Partner S.à.r.l. X X

FI Neptune Finance Partner II S.à.r.l. X X

FI RESPARCS Funding Limited Partnership I X X

FI RESPARCS Funding II Limited Partnership X X

FI Solar Holdings S.à.r.l. X X

IU HSH N Residual Value Ltd. X X

ASU FSL Asset Management Pte. Ltd. X X

ASU FSL Trust Management Pte. Ltd. X X

9. NOTES


Treatment under supervisory law Consolidation under IFRS

Consolidation

Type of company / company full proportional Deduction

method

Risk-weighted (equity

holding/ SPV) full at-equity

ASU HSH Facility Management GmbH X X

ASU Unterstützungs-Gesellschaft d. Hamburgischen Landesbank mit beschränkter Haftung X X

Oth 2200 Victory LLC X X

Oth Adessa Grundstücksverwaltungsgesellschaft mbH & Co. Vermietungs-KG X X

Oth Amentum Aircraft Leasing No. Five Limited X X

Oth Amentum Aircraft Leasing No. Seven Limited X X

Oth Amentum Aircraft Leasing No. Six Limited X X

Oth Castellum ABF S.A. X X

Oth DEERS Green Power Development Company, S.L. X X

Oth First Ship Lease Trust

X X

Oth FSP CAPCELLENCE Beteiligungs GmbH

X

Oth FSP Fluid System Partners Holding AG

X

Oth HSH Care+Clean GmbH

X X

Oth HSH Gastro+Event GmbH X X

Oth HSH Move+More GmbH X X

Oth ISM Agency, LLC X X

Oth Kontora Family Office GmbH X X

Oth Life Insurance Fund Elite LLC X X

Oth Life Insurance Fund Elite Trust X X

Oth Mitco Real Estate A S.à.r.l. X X

Oth Mitco Resolution 1 S.à.r.l. X X





Oth Next Generation Aircraft Finance 2 S.à.r.l. X X

Oth Next Generation Aircraft Finance 3 S.à.r.l X X

Oth OCEAN Funding 2013 GmbH X X

Oth RDM Limited X X

Oth Senior Assured Investment S.A.. X X

Oth Senior Preferred Investments S.A. X X

Oth Stratus ABF S.A. X X

Abbreviations:

CI: Credit institution in accordance with Article 4 (1) CRR

FI: Financial institution in accordance with Article 4 (1) No. 26 CRR

IU: Insurance undertaking in accordance with Article 4 (1) No. 1 CRR

ASU: Ancillary services undertaking in accordance with Article 4 (1) No. 18 CRR

Oth: Other companies


9.2. OWN FUNDS IN ACCORDANCE WITH ARTICLE 437 (1) CRR – SUB-GROUP

[TAB. 62] DISCLOSURE OF THE TYPE AND AMOUNTS OF THE SPECIFIC COMPONENTS OF OWN FUNDS DURING THE

TRANSITIONAL PERIOD SUB-GROUP IN € M

(A) Amount at disclosure

date

(B) regulation (EU) NO

575/2013 article

reference

(C) Amounts

subject to pre-regulation

(EU) No 575/2013 treatment or prescribed

residual amount of regulation

(EU) No 575/2013

Common Equity Tier 1 capital: instruments and reserves

1 Capital instruments and the related share premium accounts 3,193

26 (1), 27, 28, 29,

Verzeichnis der EBA

gemäß Artikel 26

Absatz 3

of which: common shares (incl. share premium) 3,193

2 Retained earnings 1,629 26 (1) (c)

3 Accumulated other comprehensive income (and other reserves, to include unrealised gains and losses under the applicable accounting standards) – 61 26 (1)

3a Funds for general banking risk 26 (1) (f)

4 Amount of qualifying items referred to in Article 484 (3) and the related share premium accounts subject to phase out from CET1 486 (2)

Public sector capital injections grandfathered until 1 January 2018 483 (2)

5 Minority Interests (amount allowed in consolidated CET1) 84, 479, 480

5a Independently reviewed interim profits net of any foreseeable charge or dividend 122 26 (2)

6 Common Equity Tier 1 (CET1) capital before regulatory adjustments 4,882

Sum of rows 1 to

5a

Common Equity Tier 1 (CET1) capital: regulatory adjustments

7 Additional value adjustments (negative amount) – 73 34, 105

8 Intangible assets (net of related tax liability) (negative amount) – 7

36 (1) (b), 37,

472 (4) – 5

9 Empty Set in the EU

10

Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability where the conditions in Article 38 (3) are met) (negative amount) – 20

36 (1) (c), 38,

472 (4) – 13

11 Fair value reserves related to gains or losses on cash flow hedges 33 (a)

12 Negative amounts resulting from the calculation of expected loss amounts – 6

36 (1) (d), 40,

159, 472 (6) – 3

13 Any increase in equity that results from securitised assets (negative amount) 32 (1)

14 Gains or losses on liabilities valued at fair value resulting from changes in own credit standing – 3 33 (b)

15 Defined-benefit pension fund assets (negative amount)

36 (1) (e), 41,

472 (7)

16 Direct and indirect holdings by an institution of own CET1 instruments (negative amount)

36 (1) (f), 42 ,

472 (8)

17

Holdings of the CET1 instruments of financial sector entities where those entities have reciprocal cross holdings with the institution designed to inflate artificially the own funds of the institution (negative amount)

36 (1) (g), 44,

472 (9)


18

Direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where the institution does not have a significant investment in those entities (amount above the 10% threshold and net of eligible short positions) (negative amount)

36 (1) (h), 43, 45,

46, 49 (2) (3), 79,

472 (10)

19

Direct, indirect and synthetic holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount)

36 (1) (i), 43, 45,

47, 48 (1) (b),

49 (1) bis (3), 79,

470, 472 (11)


20a Exposure amount of the following items which qualify for a RW of 1250%, where the institution opts for the deduction alternative – 668 36 (1) (k)

20b of which: qualifying holdings outside the financial sector (negative amount) 36 (1) (k) (i),

89 bis 91

20c of which: securitisation positions (negative amount) – 668

36 (1) (k) (ii), 243 (1) (b), 244 (1) (b),

258

20d of which: free deliveries (negative amount) 36 (1) (k) (iii),

379 (3)

21 Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability where the conditions in 38 (3) are met) (negative amount) – 175

36 (1) (c), 38,

48 (1) (a), 470,

472 (5) – 123

22 Amount exceeding the 15% threshold (negative amount) 48 (1)

23 of which: direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities

36 (1) (i), 48 (1) (b),

470, 472 (11)


25 of which: deferred tax assets arising from temporary differences

36 (1) (c), 38, 48 (1)

(a), 470, 472 (11)

25a Losses for the current financial year (negative amount) 36 (1) (a),

472 (3)

25b Foreseeable tax charges relating to CET1 items (negative amount) 36 (1) (l)

26 Regulatory adjustments applied to Common Equity Tier 1 in respect of amounts subject to pre-CRR treatment

26a Regulatory adjustments relating to unrealised gains and losses pursuant to Articles 467 and 468 41

Of which: unrealised loss 84 467

Of which: …filter for unrealised loss 2 472

Of which: unrealised gain – 43 468

26b Amount to be deducted from or added to Common Equity Tier 1 capital with regard to additional filters and deductions required pre CRR 481

Of which: …

27 Qualifying AT1 deductions that exceed the AT1 capital of the institution (negative amount) 36 (1) (j)

28 Total regulatory adjustments to Common equity Tier 1 (CET1) – 910

Sum of rows 7 to 20a, 21, 22 plus

row 25a to 27 – 143

29 Common Equity Tier 1 (CET1) capital 3,972

Row 6 minus row

28

Additional Tier 1 (AT1) capital: instruments

30 Capital instruments and the related share premium accounts 51, 52

31 of which: classified as equity under applicable accounting standards


32 of which: classified as liabilities under applicable accounting standards

33 Amount of qualifying items referred to in Article 484 (4) and the related share premium accounts subject to phase out from AT1 1,324 486 (3) – 1,324


34 Qualifying Tier 1 capital included in consolidated AT1 capital (including minority interests not included in row 5) issued by subsidiaries and held by third parties 85, 86, 480

35 of which: instruments issued by subsidiaries subject to phase out 486 (3)

36 Additional Tier 1 (AT1) capital before regulatory adjustments 1,324

Sum of rows 30,

33 and 34 – 1,324

Additional Tier 1 (AT1) capital: regulatory adjustments

37 Direct and indirect holdings by an institution of own AT1 Instruments (negative amount)

52 (1) (b), 56 (a),

57, 475 (2)

38

Holdings of the AT1 instruments of financial sector entities where those entities have reciprocal cross holdings with the institution designed to inflate artificially the own funds of the institution (negative amount)

56 (b), 58, 475 (3)

39

Direct and indirect holdings of the AT1 instruments of financial sector entities where the institution does not have a significant investment in those entities (amount above the 10% threshold and net of eligible short positions) (negative amount)

56 (c), 59, 60,

79, 475 (4)

40

Direct and indirect holdings by the institution of the AT1 instruments of financial sector entities where the institution has a significant investment in those entities (amount above the 10% threshold net of eligible short positions) (negative amount)

56 (d), 59, 79,

475 (4)

41

Regulatory adjustments applied to additional tier 1 in respect of amounts subject to pre-CRR treatment and transitional treatments subject to phase out as prescribed in Regulation (EU) No 575/2013 (i.e. CRR residual amounts) – 5 5

41a

Residual amounts deducted from Additional Tier 1 capital with regard to deduction from Common Equity Tier 1 capital during the transitional period pursuant to article 472 of Regulation (EU) No 575/2013 – 5

472, 472 (3) (a),

472 (4) (a), 472 (6),

472 (8) (a), 472 (9),

472 (10) (a), 472 (11) (a) 5

Of which: Intangible assets – 5 5

Of which: shortfall of provisions to expected losses

41b Residual amounts deducted from Additional Tier 1 capital with regard to deduction from Tier 2 capital during the transitional period pursuant to article 475 of Regulation (EU) No 575/2013

477, 477 (3), 477 (4) (a)

Of which items to be detailed line by line, e.g. Reciprocal cross holdings in Tier 2 instruments, direct holdings of non-significant investments in the capital of other financial sector entities, etc

41c Amount to be deducted from or added to Additional Tier 1 capital with regard to additional filters and deductions required pre- CRR

467, 468, 481

Of which: …possible filter for unrealised losses

Of which: …possible filter for unrealised gains

Of which: …

42 Qualifying T2 deductions that exceed the T2 capital of the institution (negative amount) 56 (e)

43 Total regulatory adjustments to Additional Tier 1 (AT1) capital – 5

Sum of rows 37 to

42 5

44 Additional Tier 1 (AT1) capital 1,319

Row 36 minus row

43

45 Tier 1 capital (T1 = CET1 + AT1) 5,292

Sum of rows 29 to

44

Tier 2 (T2) capital: instruments and provisions

46 Capital instruments and the related share premium accounts 1,514 62, 63 975

47 Amount of qualifying items referred to in Article 484 (5) and the related share premium accounts subject to phase out from T2 53 486 (4) – 53


48

Qualifying own funds instruments included in consolidated T2 capital (including minority interests and AT1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third parties 87, 88, 480


49 of which: instruments issued by subsidiaries subject to phase out 486 (4)

50 Credit risk adjustments 62 62 (c) und (d)

51 Tier 2 (T2) capital before regulatory adjustments 1,629

Tier 2 (T2) capital: regulatory adjustments

52 Direct and indirect holdings by an institution of own T2 instruments and subordinated loans (negative amount)

63 (b) (i), 66 (a),

67, 477 (2)

53

Holdings of the T2 instruments and subordinated loans of financial sector entities where those entities have reciprocal cross holdings with the institution designed to inflate artificially the own funds of the institution (negative amount)

66 (b), 68, 477 (3)

54

Direct and indirect holdings of the T2 instruments and subordinated loans of financial sector entities where the institution does not have a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount)

66 (c), 69, 70, 79, 477 (4)

54a Of which new holdings which are not subject to transitional arrangements

54b Of which holdings existing before 1 January 2013 and subject to transitional arrangements

55

Direct and indirect holdings by the institution of the T2 instruments and subordinated loans of financial sector entities where the institution has a significant investment in those entities (net of eligible short positions) (negative amount)

66 (d), 69, 79

56

Regulatory adjustments applied to tier 2 in respect of amounts subject to pre-CRR treatment and transitional treatments subject to phase out as prescribed in Regulation (EU) No 575/2013 (i.e. CRR residual amounts)

56a

Residual amounts deducted from Tier 2 capital with regard to deduction from Common Equity Tier 1 capital during the transitional period pursuant to article 472 of Regulation (EU) No 575/2013

472, 472 (3) (a),

472 (4), 472 (6),

472 (8) (a), 472 (9),

472 (10) (a), 472 (11) (a)


56b Residual amounts deducted from Tier 2 capital with regard to deduction from Additional Tier 1 capital during the transitional period pursuant to article 475 of Regulation (EU) No 575/2013

475, 475 (2) (a),

475 (3), 475 (4) (a)

Of which items to be detailed line by line, e.g. reciprocal cross holdings in at1 instruments, direct holdings of non significant investments in the capital of other financial sector entities, etc

56c Amount to be deducted from or added to Tier 2 capital with regard to additional filters and deductions required pre CRR

467, 468, 481



Of which: …

57 Total regulatory adjustments to Tier 2 (T2) capital

Sum of rows 52 to

56

58 Tier 2 (T2) capital 1,629

Row 51 minus row

57

59 Total capital (TC = T1 + T2) 6,921

Sum of rows 45 and 58

59a

Risk weighted assets in respect of amounts subject to pre-CRR treatment and transitional treatments subject to phase out as prescribed in Regulation (EU) No 575/2013(i.e. CRR residual amounts)

davon: von der künftigen Rentabilität abhängige latente Steueransprüche, verringert um entsprechende Steuerschulden

Of which: …items not deducted from CET1 (Regulation (EU) No 575/2013residual amounts) (items to be detailed line by line, e.g. Deferred tax assets that rely on future profitability net of related tax liablity, indirect holdings of own CET1, etc)

Of which: …items not deducted from AT1 items (Regulation (EU) No 575/2013residual amounts) (items to be detailed line by line, e.g. Reciprocal cross holdings in T2 instruments, direct holdings of non-significant investments in the capital of other financial sector entities, etc)


Items not deducted from T2 items (Regulation (EU) No 575/2013residual amounts) (items to be detailed line by line, e.g. Indirect holdings of own t2 instruments, indirect holdings of non significant investments in the capital of other financial sector entities, indirect holdings of significant investments in the capital of other financial sector entities etc)

60 Total risk weighted assets 28,580

Capital ratios and buffers

61 Common Equity Tier 1 (as a percentage of risk exposure amount) 13.9% 92 (2) (a),

465

62 Tier 1 (as a percentage of risk exposure amount) 18.5% 92 (2) (b),

465

63 Total capital (as a percentage of risk exposure amount) 24.2% 92 (2) (c)

64

Institution specific buffer requirement (CET1 requirement in accordance with article 92 (1) (a) plus capital conservation and countercyclical buffer requirements, plus systemic risk buffer, plus the systemically important institution buffer (G-SII or O-SII buffer), expressed as a percentage of risk exposure amount) 183

CRD 128, 129, 130

65 of which: capital conservation buffer requirement 179

66 of which: countercyclical buffer requirement 5

67 of which: systemic risk buffer requirement

67a of which: Global Systemically Important Institution (G-SII) or Other Systemically Important Institution (O-SII) buffer CRD 131

68 Common Equity Tier 1 available to meet buffers (as a percentage of risk exposure amount) 9.4% CRD 128

69 [non relevant in EU regulation]



Amounts below the thresholds for deduction (before risk weighting)

72

Direct and indirect holdings of the capital of financial sector entities where the institution does not have a significant investment in those entities (amount below 10% threshold and net of eligible short positions) 69

36 (1) (h), 45, 46,

472 (10), 56 (c), 59,

60, 475 (4), 66 (c),

69, 70, 477 (4)

73

Direct and indirect holdings by the institution of the CET 1 instruments of financial sector entities where the institution has a significant investment in those entities (amount below 10% threshold and net of eligible short positions) 2

36 (1) (i), 45, 48,

470, 472 (11)


75 Deferred tax assets arising from temporary differences (amount below 10% threshold, net of related tax liability where the conditions in Article 38 (3) are met) 415

36 (1) (c), 38, 48,

470, 472 (c)

Applicable caps on the inclusion of provisions in Tier 3

76 Credit risk adjustments included in T2 in respect of exposures subject to standardized approach (prior to the application of the cap) 62

77 Cap on inclusion of credit risk adjustments in T2 under standardised approach 62

78 Credit risk adjustments included in T2 in respect of exposures subject to internal ratings-based approach (prior to the application of the cap) 62 62

79 Cap for inclusion of credit risk adjustments in T2 under internal ratings-based approach 136 62 3

Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2013 and 1 Jan 2022)

80 Current cap on CET1 instruments subject to phase out arrangements

484 (3), 486 (2)

und (5)

81 Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities)

484 (3), 486 (2)

und (5)

82 Current cap on AT1 instruments subject to phase out arrangements 1,324

484 (4), 486 (3)

und (5)

83 Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) – 630

484 (4), 486 (3)

und (5)


84 Current cap on T2 instruments subject to phase out arrangements 53

484 (5), 486 (4)

und (5)

85 Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) – 124

484 (5), 486 (4)

und (5)

[TAB. 63] FULL RECONCILATION OF COMPONENTS OF OWN FUNDS WITH THE AUDITED FINANCIAL STATEMENTS IN € M SUB-

GROUP

STEP 1) COMPARISON OF OWN FUNDS ITEMS OF THE CONSOLIDATED FINANCIAL STATEMENTS BETWEEN THE SCOPE OF CONSOLIDATION

UNDER THE GERMAN COMMERCIAL CODE (HGB) AND THE REGULATORY SCOPE OF CONSOLIDATION

Own funds items financial statement under IFRS per 12-31-2015

Position Balance Sheet Scope of

Consolidation Regulatory Scope of Consolidation Cause of the difference

Share capital 3,018 3,018

Capital reserve 175 175

Retained earnings 1,464 1,511 Consolidation and/or

reinvestment of profits/losses

Revaluation reserve 103 103

Currency conversion reserve 41 49 Effects due to different scope of

consolidation

Other net income from financial investments accounted for under the equity method 0 0

Other income from non-current assets held for sale and disposal groups 0 0

Group net profit/loss 99 14 Effects due to different scope of

consolidation

Non-controlling interests -16 -16

Equity 4,885 4,855

Subordinated liabilities 2,109 2,109

Silent participations 1,330 1,330

Profit participation capital 13 13

Subordinated capital 3,452 3,452

Other assets on the balance sheet/ P&L positions relevant for regulatory reporting

Intangible assets 16 16 Effects due to different scope of

consolidation

Deferred tax assets 2,223 2,211 Effects due to different scope of

consolidation

Deferred tax liabilities 1,475 1,475

Valuation result -67 -75 Effects due to different scope of consolidation


STEP 2) EXPANSION OF OWN FUNDS ITEMS OF THE CONSOLIDATED FINANCIAL STATEMENTS USING THE REGULATORY SCOPE OF

CONSOLIDATION TAKING INTRA-YEAR REGULATORY ADJUSTMENTS AND UPDATES INTO ACCOUNT

Position

Expanded own funds items (IFRS per 12-31-

2015) of the regulatory

scope balance sheet

Updates and regulatory

adjustments in fiscal year

2016 Reason for adjustment



scope balance sheet

including updates and

regulatory adjustments in

2016 Component

Share capital 3,018 0 3,018 a

Capital reserve 175 0 175 b

Retained earnings 1,511 -107 1,404

of which: other retained earnings 519 0 519 c

of which: cumulative gains and losses arising on the revaluation of pensions and similar obligations recognised in OCI -152 -156

Valuation changes in

2015 -308 j

of which: deferred taxes on cumulative gains and losses arising on the revaluation of pension and similar obligations recognised in OCI 48 49


2015 97 k

of which: group reserves 1,096 0 1096 d

Reveluation reserve 103 5


2015 108 f

Currency conversion reserve 49 -8


2015 41 e

Other net income from financial investments accounted for under the equity method 0 0 0 g

Other net income from non-current assets held for sale and disposal groups 0 0 0

Not considered in

regulatory reporting

Group net profit/loss 14 0 14 i

Non-controlling interests -16 16 0

Not considered in


Equity 4,855 4,761

Subordinated liabilities 2,109 -1,049

Amortization due to Art.

64 CRR and deduction of non-eligible instruments 1061 o

including: Instruments not eligible in the future 87 -76 11 p

Silent participations 1,330 624

Addition of silent

participations which are treated as

securitisations in the balance

sheet 1954 n

Profit participation capital 13 -13

Amortization due to Art. 64

CRR 0 q

Subordinated Capital 3,452 3014


Intangible assets 16 -2


2015 14 ma

Deferred tax assets 2,211 0 2211

of which: deferred tax assets that rely on future profitability excluding those arising from temporary differences 99 0 99 ra

of which: deferred tax assets arising from temporary differences 2,112 0 2112 sa

Deferred tax laibilities 1,475 0 1475

including: deferred tax assets that rely on future profitability excluding those arising from temporary differences 66 0

Allocation due to Art. 38

(5) CRR 66 rb

including: deferred tax assets arising from temporary differences 1,406 0


(5) CRR 1406 sb

including: deferred taxes on intangible assets 3 0 3 mb

Valuation result -67 -8 -75

including: own credit risk asset class interest rates 2 1


2015 3 ha

including: own credit risk asset class equity 0 0


2015 0 hb

including: own credit risk asset class credit derivatives 1 0


2015 0 hc

Interim profit/loss 0 122 Interim

profit 2015 122 l


STEP 3) ALLOCATION OF OWN FUNDS ITEMS TO EQUITY ITEMS OF THE SUB-GROUP


date

(C) Amounts




(EU) No 575/2013

Component mapping to

step 2


1 Capital instruments and the related share premium accounts 3,193 a+b

2 Retained earnings 1,629 c+d+i

3 Accumulated other comprehensive income (and other reserves, to include unrealised gains and losses under the applicable accounting standards) -61 e+f+g+(j+k)

5a Independently reviewed interim profits net of any foreseeable charge or dividend 122 l



7 Additional value adjustments (negative amount) -73

only regulatory

value

8 Intangible assets (net of related tax liability) (negative amount) -7 -5 ma - mb

10

Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability where the conditions in Article 38 (3) are met) (negative amount) -20 -13 rb-ra

12 Negative amounts resulting from the calculation of expected loss amounts -6 -3

only regulatory

value

14 Gains or losses on liabilities valued at fair value resulting from changes in own credit standing -3 ha+hb+hc

20a Exposure amount of the following items which qualify for a RW of 1250%, where the institution opts for the deduction alternative -668

only regulatory

value

21 Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability where the conditions in 38 (3) are met) (negative amount) -175 -123

sb-sa, and after

consideration of Art. 48

CRR thresholds


Of which: unrealised loss 84 (j + k) * 40%

Of which: unrealised gain -43 f *40%

26b Amount to be deducted from or added to Common Equity Tier 1 capital with regard to additional filters and deductions required pre CRR 0 0

28 Total regulatory adjustments to Common equity Tier 1 (CET1) -910 -143



33 Amount of qualifying items referred to in Article 484 (4) and the related share premium accounts subject to phase out from AT1 1,324 -1,324 n


41a

Residual amounts deducted from Additional Tier 1 capital with regard to deduction from Common Equity Tier 1 capital during the transitional period pursuant to article 472 of Regulation (EU) No 575/2013 -5 5

Residual intangible

assets (row 8): EUR 5

million

44 Additional Tier 1 (AT1) capital 1,319




46 Capital instruments and the related share premium accounts 1,514 975

o+q+n (proportionall

y)

47 Amount of qualifying items referred to in Article 484 (5) and the related share premium accounts subject to phase out from T2 53 -53

p+n (proportionall

y)

50 Credit risk adjustments 62 0

only regulatory

value


Tier 2 (T2) capital: regulatory adjustments en

56a

Residual amounts deducted from Tier 2 capital with regard to deduction from Common Equity Tier 1 capital during the transitional period pursuant to article 472 of Regulation (EU) No 575/2013 0 0




9.3. OWN FUNDS IN ACCORDANCE WITH ARTICLE 437 (1) CRR – HOLDING

[TAB. 64] DISCLOSURE OF THE TYPE AND AMOUNTS OF THE SPECIFIC COMPONENTS OF OWN FUNDS DURING THE

TRANSITIONAL PERIOD HOLDING IN € M


date

(B) REGULATION (EU) NO 575/2013

ARTICLE REFERENCE

(C) Amounts subject to pre-regulation (EU)

No 575/2013 treatment or prescribed residual amount of regulation (EU) No

575/2013


1 Capital instruments and the related share premium accounts 71

26 (1), 27, 28, 29, Verzeichnis der EBA

gemäß Artikel 26 Absatz 3

of which: common shares (incl. share premium) 71

2 Retained earnings 2,601 26 (1) (c)

3

Accumulated other comprehensive income (and other reserves, to include unrealised gains and losses under the applicable accounting standards) 34 26 (1)

3a Funds for general banking risk 26 (1) (f)

4

Amount of qualifying items referred to in Article 484 (3) and the related share premium accounts subject to phase out from CET1 486 (2)


5 Minority Interests (amount allowed in consolidated CET1) 176 84, 479, 480 – 13

5a

Independently reviewed interim profits net of any foreseeable charge or dividend 26 (2)

6

Common Equity Tier 1 (CET1) capital before regulatory adjustments 2,882 Sum of rows 1 to 5a


7 Additional value adjustments (negative amount) – 73 34, 105

8 Intangible assets (net of related tax liability) (negative amount) – 9

36 (1) (b), 37, 472 (4) – 6


10

Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability where the conditions in Article 38 (3) are met) (negative amount) – 30

36 (1) (c), 38, 472 (4) – 20

11 Fair value reserves related to gains or losses on cash flow hedges 33 (a)

12

Negative amounts resulting from the calculation of expected loss amounts – 6

36 (1) (d), 40, 159, 472 (6) – 3

13

Any increase in equity that results from securitised assets (negative amount) 32 (1)


14

Gains or losses on liabilities valued at fair value resulting from changes in own credit standing – 13 33 (b)

15 Defined-benefit pension fund assets (negative amount)

36 (1) (e), 41, 472 (7)

16

Direct and indirect holdings by an institution of own CET1 instruments (negative amount)

36 (1) (f), 42 , 472 (8)

17

Holdings of the CET1 instruments of financial sector entities where those entities have reciprocal cross holdings with the institution designed to inflate artificially the own funds of the institution (negative amount)

36 (1) (g), 44, 472 (9)

18

Direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where the institution does not have a significant investment in those entities (amount above the 10% threshold and net of eligible short positions) (negative amount)

36 (1) (h), 43, 45, 46, 49 (2) (3), 79,

472 (10)

19

Direct, indirect and synthetic holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount)

36 (1) (i), 43, 45, 47, 48 (1) (b),

49 (1) bis (3), 79, 470, 472 (11)


20a

Exposure amount of the following items which qualify for a RW of 1250%, where the institution opts for the deduction alternative – 668 36 (1) (k)

20b

of which: qualifying holdings outside the financial sector (negative amount)

36 (1) (k) (i), 89 bis 91

20c of which: securitisation positions (negative amount) – 668

36 (1) (k) (ii), 243 (1) (b),

244 (1) (b), 258

20d of which: free deliveries (negative amount)

36 (1) (k) (iii), 379 (3)

21

Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability where the conditions in 38 (3) are met) (negative amount) – 292

36 (1) (c), 38, 48 (1) (a), 470,

472 (5) – 201

22 Amount exceeding the 15% threshold (negative amount) 48 (1)

23

of which: direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities

36 (1) (i), 48 (1) (b), 470, 472 (11)


25 of which: deferred tax assets arising from temporary differences

36 (1) (c), 38, 48 (1) (a), 470, 472 (11)

25a Losses for the current financial year (negative amount) 36 (1) (a), 472 (3)

25b Foreseeable tax charges relating to CET1 items (negative amount) 36 (1) (l)


26

Regulatory adjustments applied to Common Equity Tier 1 in respect of amounts subject to pre-CRR treatment

26a

Regulatory adjustments relating to unrealised gains and losses pursuant to Articles 467 and 468 14

Of which: unrealised loss 62 467

Of which: …filter for unrealised loss 2 472

Of which: unrealised gain – 48 468

26b

Amount to be deducted from or added to Common Equity Tier 1 capital with regard to additional filters and deductions required pre CRR 481

Of which: …

27

Qualifying AT1 deductions that exceed the AT1 capital of the institution (negative amount) 36 (1) (j)

28

Total regulatory adjustments to Common equity Tier 1 (CET1) – 1,078

Sum of rows 7 to 20a, 21, 22 plus row 25a to 27 – 229

29 Common Equity Tier 1 (CET1) capital 1,804 Row 6 minus row 28



31 of which: classified as equity under applicable accounting standards

32

of which: classified as liabilities under applicable accounting standards

33

Amount of qualifying items referred to in Article 484 (4) and the related share premium accounts subject to phase out from AT1 486 (3)


34

Qualifying Tier 1 capital included in consolidated AT1 capital (including minority interests not included in row 5) issued by subsidiaries and held by third parties 888 85, 86, 480 – 888

35 of which: instruments issued by subsidiaries subject to phase out 888 486 (3) – 888

36

Additional Tier 1 (AT1) capital before regulatory adjustments 888 Sum of rows 30, 33 and 34


37

Direct and indirect holdings by an institution of own AT1 Instruments (negative amount)

52 (1) (b), 56 (a), 57, 475 (2)

38

Holdings of the AT1 instruments of financial sector entities where those entities have reciprocal cross holdings with the institution designed to inflate artificially the own funds of the institution (negative amount) 56 (b), 58, 475 (3)


39

Direct and indirect holdings of the AT1 instruments of financial sector entities where the institution does not have a significant investment in those entities (amount above the 10% threshold and net of eligible short positions) (negative amount)

56 (c), 59, 60, 79, 475 (4)

40

Direct and indirect holdings by the institution of the AT1 instruments of financial sector entities where the institution has a significant investment in those entities (amount above the 10% threshold net of eligible short positions) (negative amount)

56 (d), 59, 79, 475 (4)

41

Regulatory adjustments applied to additional tier 1 in respect of amounts subject to pre-CRR treatment and transitional treatments subject to phase out as prescribed in Regulation (EU) No 575/2013 (i.e. CRR residual amounts) – 6 6

41a

Residual amounts deducted from Additional Tier 1 capital with regard to deduction from Common Equity Tier 1 capital during the transitional period pursuant to article 472 of Regulation (EU) No 575/2013 – 6

472, 472 (3) (a), 472 (4) (a), 472 (6), 472 (8) (a), 472 (9),

472 (10) (a), 472 (11) (a) 6

Of which: Intangible assets – 6 6


41b

Residual amounts deducted from Additional Tier 1 capital with regard to deduction from Tier 2 capital during the transitional period pursuant to article 475 of Regulation (EU) No 575/2013

477, 477 (3), 477 (4) (a)

Of which items to be detailed line by line, e.g. Reciprocal cross holdings in Tier 2 instruments, direct holdings of non-significant investments in the capital of other financial sector entities, etc

41c

Amount to be deducted from or added to Additional Tier 1 capital with regard to additional filters and deductions required pre- CRR 467, 468, 481



Of which: …

42

Qualifying T2 deductions that exceed the T2 capital of the institution (negative amount) 56 (e)

43

Total regulatory adjustments to Additional Tier 1 (AT1) capital – 6 Sum of rows 37 to 42 6

44 Additional Tier 1 (AT1) capital 883 Row 36 minus row 43

45 Tier 1 capital (T1 = CET1 + AT1) 2,687 Sum of rows 29 to 44




47

Amount of qualifying items referred to in Article 484 (5) and the related share premium accounts subject to phase out from T2 486 (4)


48

Qualifying own funds instruments included in consolidated T2 capital (including minority interests and AT1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third parties 1,008 87, 88, 480 355

49 of which: instruments issued by subsidiaries subject to phase out 34 486 (4) – 34

50 Credit risk adjustments 62 62 (c) und (d) –


Tier 2 (T2) capital: regulatory adjustments

52

Direct and indirect holdings by an institution of own T2 instruments and subordinated loans (negative amount)

63 (b) (i), 66 (a), 67, 477 (2)

53

Holdings of the T2 instruments and subordinated loans of financial sector entities where those entities have reciprocal cross holdings with the institution designed to inflate artificially the own funds of the institution (negative amount) 66 (b), 68, 477 (3)

54

Direct and indirect holdings of the T2 instruments and subordinated loans of financial sector entities where the institution does not have a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount)

66 (c), 69, 70, 79, 477 (4)

54a

Of which new holdings which are not subject to transitional arrangements

54b

Of which holdings existing before 1 January 2013 and subject to transitional arrangements

55

Direct and indirect holdings by the institution of the T2 instruments and subordinated loans of financial sector entities where the institution has a significant investment in those entities (net of eligible short positions) (negative amount) 66 (d), 69, 79

56

Regulatory adjustments applied to tier 2 in respect of amounts subject to pre-CRR treatment and transitional treatments subject to phase out as prescribed in Regulation (EU) No 575/2013 (i.e. CRR residual amounts)

56a

Residual amounts deducted from Tier 2 capital with regard to deduction from Common Equity Tier 1 capital during the transitional period pursuant to article 472 of Regulation (EU) No 575/2013

472, 472 (3) (a), 472 (4), 472 (6),

472 (8) (a), 472 (9), 472 (10) (a), 472 (11) (a)



56b

Residual amounts deducted from Tier 2 capital with regard to deduction from Additional Tier 1 capital during the transitional period pursuant to article 475 of Regulation (EU) No 575/2013

475, 475 (2) (a), 475 (3), 475 (4) (a)

Of which items to be detailed line by line, e.g. reciprocal cross holdings in at1 instruments, direct holdings of non significant investments in the capital of other financial sector entities, etc

56c

Amount to be deducted from or added to Tier 2 capital with regard to additional filters and deductions required pre CRR 467, 468, 481



Of which: …

57 Total regulatory adjustments to Tier 2 (T2) capital Sum of rows 52 to 56

58 Tier 2 (T2) capital 1,070 Row 51 minus row 57

59 Total capital (TC = T1 + T2) 3,757 Sum of rows 45 and 58

59a

Risk weighted assets in respect of amounts subject to pre-CRR treatment and transitional treatments subject to phase out as prescribed in Regulation (EU) No 575/2013(i.e. CRR residual amounts)

davon: von der künftigen Rentabilität abhängige latente Steueransprüche, verringert um entsprechende Steuerschulden

Of which: …items not deducted from CET1 (Regulation (EU) No 575/2013residual amounts) (items to be detailed line by line, e.g. Deferred tax assets that rely on future profitability net of related tax liablity, indirect holdings of own CET1, etc)

Of which: …items not deducted from AT1 items (Regulation (EU) No 575/2013residual amounts) (items to be detailed line by line, e.g. Reciprocal cross holdings in T2 instruments, direct holdings of non-significant investments in the capital of other financial sector entities, etc)

Items not deducted from T2 items (Regulation (EU) No 575/2013residual amounts) (items to be detailed line by line, e.g. Indirect holdings of own t2 instruments, indirect holdings of non significant investments in the capital of other financial sector entities, indirect holdings of significant investments in the capital of other financial sector entities etc)

60 Total risk weighted assets 27,684

Capital ratios and buffers


61

Common Equity Tier 1 (as a percentage of risk exposure amount) 6.5% 92 (2) (a), 465

62 Tier 1 (as a percentage of risk exposure amount) 9.7% 92 (2) (b), 465

63 Total capital (as a percentage of risk exposure amount) 13.6% 92 (2) (c)

64

Institution specific buffer requirement (CET1 requirement in accordance with article 92 (1) (a) plus capital conservation and countercyclical buffer requirements, plus systemic risk buffer, plus the systemically important institution buffer (G-SII or O-SII buffer), expressed as a percentage of risk exposure amount) 178 CRD 128, 129, 130

65 of which: capital conservation buffer requirement 173

66 of which: countercyclical buffer requirement 4

67 of which: systemic risk buffer requirement

67a

of which: Global Systemically Important Institution (G-SII) or Other Systemically Important Institution (O-SII) buffer CRD 131

68

Common Equity Tier 1 available to meet buffers (as a percentage of risk exposure amount) 2.0% CRD 128




Amounts below the thresholds for deduction (before risk weighting)

72

Direct and indirect holdings of the capital of financial sector entities where the institution does not have a significant investment in those entities (amount below 10% threshold and net of eligible short positions) 69

36 (1) (h), 45, 46, 472 (10), 56 (c), 59,

60, 475 (4), 66 (c), 69, 70, 477 (4)

73

Direct and indirect holdings by the institution of the CET 1 instruments of financial sector entities where the institution has a significant investment in those entities (amount below 10% threshold and net of eligible short positions) 2

36 (1) (i), 45, 48, 470, 472 (11)


75

Deferred tax assets arising from temporary differences (amount below 10% threshold, net of related tax liability where the conditions in Article 38 (3) are met) 210

36 (1) (c), 38, 48, 470, 472 (c)

Applicable caps on the inclusion of provisions in Tier 3

76

Credit risk adjustments included in T2 in respect of exposures subject to standardized approach (prior to the application of the cap) 62

77

Cap on inclusion of credit risk adjustments in T2 under standardised approach 62


78

Credit risk adjustments included in T2 in respect of exposures subject to internal ratings-based approach (prior to the application of the cap) 62 62

79

Cap for inclusion of credit risk adjustments in T2 under internal ratings-based approach 133 62 3

Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2013 and 1 Jan 2022)

80 Current cap on CET1 instruments subject to phase out arrangements

484 (3), 486 (2) und (5)

81

Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities)

484 (3), 486 (2) und (5)

82 Current cap on AT1 instruments subject to phase out arrangements

484 (4), 486 (3) und (5)

83

Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities)

484 (4), 486 (3) und (5)

84 Current cap on T2 instruments subject to phase out arrangements

484 (5), 486 (4) und (5)

85

Amount excluded from T2 due to cap (excess over cap after redemptions and maturities)

484 (5), 486 (4) und (5)


[TAB. 65] FULL RECONCILATION OF COMPONENTS OF OWN FUNDS WITH THE AUDITED FINANCIAL STATEMENTS IN € M

HOLDING

STEP 1) COMPARISON OF OWN FUNDS ITEMS OF THE CONSOLIDATED FINANCIAL STATEMENTS BETWEEN THE SCOPE OF CONSOLIDATION

UNDER THE GERMAN COMMERCIAL CODE (HGB) AND THE REGULATORY SCOPE OF CONSOLIDATION

Own funds items financial statement under IFRS per 12-31-2016

Position

Balance Sheet Scope of

Consolidation

Regulatory Scope of

Consolidation Cause of the

difference

Share capital 0 0

Capital reserve 71 71

Retained earnings 2,486 2,446

Consolidation and/or

reinvestment of

profits/losses

Revaluation reserve 121 121

Currency conversion reserve 57 67

Effects due to different scope of

consolidation

Other net income from financial investments accounted for under the equity method 0 0

Other income from non-current assets held for sale and disposal groups 0 0

Group net profit/loss 321 375


consolidation

Non-controlling interests 239 239

Equity 3,295 3,320

Subordinated liabilities 2,110 2,110

Silent participations 1,412 1,412

Profit participation capital 14 14

Subordinated capital 3,536 3,536

Other assets on the balance sheet/ P&L positions relevant for regulatory reporting

Intangible assets 14 14


consolidation

Deferred tax assets 1,767 1,746


consolidation

Deferred tax liabilities 1,008 1,000

Valuation result 496 487

Effects due to different

scope of consolidati

on


STEP 2) EXPANSION OF OWN FUNDS ITEMS OF THE CONSOLIDATED FINANCIAL STATEMENTS USING THE REGULATORY SCOPE OF

CONSOLIDATION TAKING INTRA-YEAR REGULATORY ADJUSTMENTS AND UPDATES INTO ACCOUNT

Position



scope balance sheet

Updates and regulatory

adjustments in fiscal year

2016 Reason for adjustment



scope balance sheet

including updates and

regulatory adjustments in

2016 Component

Share capital 0 0 0 a

Capital reserve 71 0 71 b

Retained earnings 2,446 0 2,446

of which: other retained earnings 663 0 663 c

of which: cumulative gains and losses arising on the revaluation of pensions and similar obligations recognised in OCI -227 0


2015 -227 j

of which: deferred taxes on cumulative gains and losses arising on the revaluation of pension and similar obligations recognised in OCI 72 0


2015 72 k

of which: group reserves 1,938 0 1938 d

Reveluation reserve 121 0


2015 121 f

Currency conversion reserve 67 0


2015 67 e

Other net income from financial investments accounted for under the equity method 0 0 0 g

Other net income from non-current assets held for sale and disposal groups 0 0 0

Not considered in


Group net profit/loss 375 -375 0 i

Non-controlling interests 239 -63 176 t

Equity 3,320 2,882

Subordinated liabilities 2,110 -1,428

Amortization due to Art.

64 CRR and deduction of non-eligible instruments 682 o

including: Instruments not eligible in the future 87 -80 7 p

Silent participations 1,412 -198

Addition of silent

participations which are treated as

securitisations in the balance

sheet 1214 n

Profit participation capital 14 -14

Amortization due to Art. 64

CRR 0 q

Subordinated Capital 3,536 1896

Intangible assets 14 0 14 ma

Deferred tax assets 1,746 0 1746

of which: deferred tax assets that rely on future profitability excluding those arising from temporary differences 107 0 107 ra


of which: deferred tax assets arising from temporary differences 1,638 0 1638 sa

Deferred tax laibilities 1,000 0 1000

including: deferred tax assets that rely on future profitability excluding those arising from temporary differences 57 0


(5) CRR 57 rb

including: deferred tax assets arising from temporary differences 941 0


(5) CRR 941 sb

including: deferred taxes on intangible assets 2 0 2 mb

Valuation result 496 -9 487

including: own credit risk asset class interest rates 13 0 13 ha

including: own credit risk asset class equity 0 0 0 hb

including: own credit risk asset class credit derivatives 0 0 0 hc

Interim profit/loss 0 0 0 l


STEP 3) ALLOCATION OF OWN FUNDS ITEMS TO EQUITY ITEMS OF THE HOLDING


date

(C) Amounts




(EU) No 575/2013

Component mapping to

step 2


1 Capital instruments and the related share premium accounts 71 a+b

2 Retained earnings 2,601 c+d+i

3 Accumulated other comprehensive income (and other reserves, to include unrealised gains and losses under the applicable accounting standards) 34 e+f+g+(j+k)

5 Independently reviewed interim profits net of any foreseeable charge or dividend 176 t



7 Additional value adjustments (negative amount) -73

only regulatory

value

8 Intangible assets (net of related tax liability) (negative amount) -9 -6 ma - mb

10

Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability where the conditions in Article 38 (3) are met) (negative amount) -30 -20 rb-ra

12 Negative amounts resulting from the calculation of expected loss amounts -6 -3

only regulatory

value

14 Gains or losses on liabilities valued at fair value resulting from changes in own credit standing -13 ha+hb+hc

20a Exposure amount of the following items which qualify for a RW of 1250%, where the institution opts for the deduction alternative -668

only regulatory

value

21 Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability where the conditions in 38 (3) are met) (negative amount) -292 -201

sb-sa, and after

consideration of Art. 48

CRR thresholds


Of which: unrealised loss -48 (j + k) * 40%

Of which: unrealised gain 62 f *40%

26b Amount to be deducted from or added to Common Equity Tier 1 capital with regard to additional filters and deductions required pre CRR 0 0

28 Total regulatory adjustments to Common equity Tier 1 (CET1) -1,078 -229



34 Amount of qualifying items referred to in Article 484 (4) and the related share premium accounts subject to phase out from AT1 888 -888

n (proportionall

y)


41a

Residual amounts deducted from Additional Tier 1 capital with regard to deduction from Common Equity Tier 1 capital during the transitional period pursuant to article 472 of Regulation (EU) No 575/2013 -6 6

Residual intangible

assets (row 8): EUR 5

million

44 Additional Tier 1 (AT1) capital 883




48 Capital instruments and the related share premium accounts 1,008

o+n (proportionall

y)

49 Amount of qualifying items referred to in Article 484 (5) and the related share premium accounts subject to phase out from T2 34 -34

p+n (proportionall

y)

50 Credit risk adjustments 62 0

only regulatory

value


Tier 2 (T2) capital: regulatory adjustments en

56a

Residual amounts deducted from Tier 2 capital with regard to deduction from Common Equity Tier 1 capital during the transitional period pursuant to article 472 of Regulation (EU) No 575/2013 0 0




9.4. MAIN FEATURES OF EQUITY INSTRUMENTS

[TAB. 66] DESCRIPTION OF THE MAIN FEATURES OF OWN FUNDS INSTRUMENTS ISSUED

1 Issuer HSH Nordbank AG HSH Nordbank AG RESPARCS Funding II L.P.

2 Unique Identifier1 DE0003303996 XFHSH0002533 DE0009842542

3 Governing law(s) of the instrument German Law German Law German Law

Regulatory Treatment

4 Transitional CRR rules Common Equity Tier 1 Additional Tier 1 Additional Tier 1

5 Post-transitional CRR rules Common Equity Tier 1 Tier 2 Tier 2

6 Eligible at solo/(sub-)consolidated /solo & (sub-)consolidated Solo and (Sub-)Consolidated Solo and (Sub-)Consolidated (Sub-)Consolidated

7 Instrument type Share capital Silent participations Silent participations

8 Amount recognised in regulatory capital 3018.2 441.5 392.8

9 Nominal amount of instrument (CUR of issuance) 3018.2 (EURm) 500 (EURm) 500 (EURm)

9 Nominal amount of issuance (Euro) 3018.2 500 500

9a Issue price 0.0 100,0 100,0

9b Redemption price 0.0 100.0 100.0

10 Accounting classification Shareholders' equity/Share capital

Liability - amortised cost Liability - amortised cost

11 Original date of issuance 02.06.2003 30.06.2014 28.05.2003

12 Perpetual or dated N/A Perpetual Perpetual

13 Original maturity date N/A no maturity no maturity

14 Issuer call subject to prior supervisory approval No No No

15 Optional call date, contigent call dates and redemption amount No yes, securities cannot be called; but through a termination of silent participation because of significant changes in tax or regulatory treatment the silent partnership can be terminated by HSH

yes, securities cannot be called; but through an annual termina-tion right as at 30th of june, in case a repayment of the notional amount plus accrued interest by Resparc SPV is secured, the silent partnership can be terminated by HSH

16 Subsequent call dates, if applicable N/A Notice Periods of 2 years N/A

Coupons / dividends

17 Fixed or floating dividend / coupons Floating Floating Fixed

18 Coupon rate and any related inxed N/A 2.10% 7.50%

19 Existence of a dividend stopper No No No

20a Fully discretionary, partially discretionary or mandatory (in terms of timing)

Mandatory Mandatory Mandatory

20b Fully discretionary, partially discretionary or mandatory (in terms of amount)


21 Existence of step up or other incentive to redeem No No No

22 Noncumulative oder cumulative Noncumulative Noncumulative Noncumulative

23 Convertible or non-convertible Nonconvertible Nonconvertible Nonconvertible

24 If convertible, conversion trigger(s) N/A N/A N/A

25 If convertible, fully or partially N/A N/A N/A

26 If convertible, conversion rate N/A N/A N/A

27 If convertible, mandatory or optional conversion N/A N/A N/A

28 If convertible, specify instrument type convertible into N/A N/A N/A

29 If convertible, specify issuer of instrument it converts into N/A N/A N/A

30 Write-down features No Yes No, capital market instruments cannot be written down but silent participations held by SPV can be written down

31 If write-down, write-down trigger(s) N/A Net loss Net loss

32 If write-down, full or partial N/A Always partially Always partially

33 If write-down, permanent or temporary N/A Temporary Temporary

34 If temporary write-down, description of write-up mechanism N/A Restorage in the subsequent year till the deposit's nominal value, as far no new deficit emerges. Restorage on silent particpations after downgrading pre-cede/override restorage of share capital and remuneration of reserves.

Restorage in the subsequent year till the deposit's nominal value, as far no new deficit emerges. Restorage on silent particpations after downgrading pre-cede/override restorage of share capital and remuneration of reserves.

35 Position in subordination hierarchy in liquidation N/A Share Share

36 Non-compliant transitioned features N/A N/A N/A

37 If yes, specify non-compliant features N/A N/A N/A


1 Issuer HSH Nordbank AG Banque de Luxembourg fiduciary for HSH Nordbank AG

HSH Nordbank AG

2 Unique Identifier1 XFNAM0018899 XS0221141400 XFNAM0019061

3 Governing law(s) of the instrument German Law English Law German Law


4 Transitional CRR rules Additional Tier 1 Additional Tier 1 Additional Tier 1

5 Post-transitional CRR rules Tier 2 Tier 2 Tier 2

6 Eligible at solo/(sub-)consolidated /solo & (sub-)consolidated Solo (Sub-)Consolidated Solo

7 Instrument type Silent participations Silent participations Silent participations


9 Nominal amount of instrument (CUR of issuance) 500 (EURm) 500 (USDm) 500 (USDm)

9 Nominal amount of issuance (Euro) 500 474.3 474.3

9a Issue price 100.0 100.0 100.0


10 Accounting classification Liability - amortised cost Liability - amortised cost Liability - amortised cost


12 Perpetual or dated Perpetual Perpetual Dated

13 Original maturity date no maturity no maturity 30.06.2036

14 Issuer call subject to prior supervisory approval Yes No No

15 Optional call date, contigent call dates and redemption amount yes, from the 31st of december 2013 onward termination right with Notice Periods of 2 years as at 31st of december, and a permission of the regulatory authority and a solvency quota of >9% on an individual level

yes, securities cannot be called; but from 31 of december 2015 onward with a 2 year termina-tion period and a permission of the regulatory authority and a solvency quota of >9% on an individual level, the silent part-nership can be terminated by HSH

yes, securities cannot be called; but from 31 of december 2015 onward with a 2 year termina-tion period and a permission of the regulatory authority and a solvency quota of >9% on an individual level, the silent part-nership can be terminated by HSH

16 Subsequent call dates, if applicable Notice Periods of 2 years N/A N/A

Coupons / dividends

17 Fixed or floating dividend / coupons Fixed Fixed Fixed

18 Coupon rate and any related inxed 7.65% 7.25% 7.25%















30 Write-down features Yes No, capital market instruments cannot be written down but silent participations held by SPV can be written down

No, capital market instruments cannot be written down but silent participations held by SPV can be written down

31 If write-down, write-down trigger(s) Net loss Net loss, whereby it is special that the coupon pay-ment/distribution is measured by the annual loss/deficit

Net loss, whereby it is special that the coupon pay-ment/distribution is measured by the annual loss/deficit

32 If write-down, full or partial Always partially Always partially Always partially

33 If write-down, permanent or temporary Temporary Temporary Temporary

34 If temporary write-down, description of write-up mechanism Restorage in the subsequent year till the deposit's nominal value, as far no new deficit emerges. Restorage on silent particpations after downgrading pre-cede/override restorage of share capital and remuneration of reserves.

Restorage in the subsequent year till the deposit's nominal value, as far no new deficit emerges. Restorage on silent particpations after downgrading pre-cede/override restorage of share capital and remuneration of reserves. But restorage is subordniated to the restorage demand of participation certifi-cates.


35 Position in subordination hierarchy in liquidation Share Share Share




1 Issuer RESPARCS Funding L.P. I HSH Nordbank AG HSH Nordbank AG

2 Unique Identifier1 XS0159207850 XFNAM0019079 XFNAM0018600




5 Post-transitional CRR rules Tier 2 Tier 2 Ineligible

6 Eligible at solo/(sub-)consolidated /solo & (sub-)consolidated (Sub-)Consolidated Solo Solo and (Sub-)Consolidated



9 Nominal amount of instrument (CUR of issuance) 300 (USDm) 300 (USDm) 100 (EURm)

9 Nominal amount of issuance (Euro) 284.6 284.6 100

9a Issue price 100.0 100.0 100.0




12 Perpetual or dated Perpetual Perpetual Perpetual

13 Original maturity date no maturity no maturity no maturity

14 Issuer call subject to prior supervisory approval No Yes Yes

15 Optional call date, contigent call dates and redemption amount yes, securities cannot be called; but through an annual termina-tion right as at 30th of june, in case a repayment of the notional amount plus accrued interest by Resparc SPV is secured, the silent partnership can be terminated by HSH

yes, from the 31st of december 2012 onward termination right with Notice Periods of 2 years as at 31st of december, and a permission of the regulatory authority and a solvency quota of >9% on an individual level

Notice Periods of 2 years

16 Subsequent call dates, if applicable N/A Notice Periods of 2 years Notice Periods of 2 years

Coupons / dividends



19 Existence of a dividend stopper No No No (potential Replenishment precedes/overrides distribution of dividends






22 Noncumulative oder cumulative cumulative Noncumulative Noncumulative








30 Write-down features No, capital market instruments cannot be written down but silent participations held by SPV can be written down

Yes Yes

31 If write-down, write-down trigger(s) Net loss Net loss Annual deficit/net loss



34 If temporary write-down, description of write-up mechanism Restorage of repayment demands and catch up on omitted distribu-tions precede/override restorage of share capital and remuneration of reserves.


Is to restore till deposit's nominal value, yet only if no new annual loss/deficit increases or emerges by this, restorage pre-cedes/overrides remuneration of reserves.





1 Issuer HSH Nordbank AG HSH Nordbank AG HSH Nordbank AG

2 Unique Identifier1 XFNAM0024178 XFNAM0018493 XFNAM0018618




5 Post-transitional CRR rules Tier 2 Ineligible Ineligible

6 Eligible at solo/(sub-)consolidated /solo & (sub-)consolidated Solo and (Sub-)Consolidated Solo and (Sub-)Consolidated Solo and (Sub-)Consolidated





9a Issue price 100.0 100.0 100.0




12 Perpetual or dated Dated Perpetual Perpetual

13 Original maturity date 01.06.2023 no maturity no maturity

14 Issuer call subject to prior supervisory approval No Yes Yes

15 Optional call date, contigent call dates and redemption amount Extraordinary/Special right of cancellation/option to call/call option; period: 2 Years

Notice period of 2 years (ex-traordinary/special right of cancellation in case of significant changes in tax ro regulatory treatment)


16 Subsequent call dates, if applicable N/A Notice Periods of 2 years Notice Periods of 2 years

Coupons / dividends



19 Existence of a dividend stopper No (potential Replenishment precedes/overrides distribution of dividends

No (potential Replenishment precedes/overrides distribution of dividends















30 Write-down features Yes Yes Yes

31 If write-down, write-down trigger(s) Annual deficit/net loss Annual deficit/net loss Annual deficit/net loss



34 If temporary write-down, description of write-up mechanism Restorage in the subsequent year till the deposit's nominal value, as far no new deficit emerges. Restorage on silent particpations after downgrading pre-cede/override restorage of share capital and remuneration of reserves. But restorage is subordniated to the restorage demand of participation certifi-cates.












5 Post-transitional CRR rules Ineligible Ineligible Ineligible




9 Nominal amount of instrument (CUR of issuance) 30 (EURm) 30 (EURm) 25 (EURm)

9 Nominal amount of issuance (Euro) 30 30 25

9a Issue price 100.0 100.0 100.0






14 Issuer call subject to prior supervisory approval Yes Yes Yes

15 Optional call date, contigent call dates and redemption amount Notice Periods of 2 years Notice Periods of 2 years Notice Periods of 2 years

16 Subsequent call dates, if applicable Notice Periods of 2 years Notice Periods of 2 years Notice Periods of 2 years

Coupons / dividends























34 If temporary write-down, description of write-up mechanism Is to restore till deposit's nominal value, yet only if no new annual loss/deficit increases or emerges by this, restorage pre-cedes/overrides remuneration of reserves.


















9a Issue price 100.0 100.0 100.0







15 Optional call date, contigent call dates and redemption amount Notice Periods of 2 years Notice Periods of 2 years Notice period of 2 years (ex-traordinary/special right of cancellation in case of significant changes in tax ro regulatory treatment)


Coupons / dividends









































9a Issue price 100.0 100.0 100.0







15 Optional call date, contigent call dates and redemption amount Notice Periods of 2 years Notice period of 2 years (ex-traordinary/special right of cancellation in case of significant changes in tax ro regulatory treatment)



Coupons / dividends









































9a Issue price 100.0 100.0 100.0










Coupons / dividends

17 Fixed or floating dividend / coupons Floating Fixed Fixed








































9a Issue price 100.0 100.0 100.0










Coupons / dividends









































9a Issue price 100.0 100.0 100.0







15 Optional call date, contigent call dates and redemption amount Notice period of 2 years (ex-traordinary/special right of cancellation in case of significant changes in tax ro regulatory treatment)




Coupons / dividends







































9 Nominal amount of instrument (CUR of issuance) 10 (EURm) 10 (EURm) 7.5 (EURm)

9 Nominal amount of issuance (Euro) 10 10 7.5

9a Issue price 100.0 100.0 100.0











Coupons / dividends









































9a Issue price 100.0 100.0 100.0










Coupons / dividends









































9a Issue price 100.0 100.0 100.0











Coupons / dividends









































9a Issue price 100.0 100.0 100.0







15 Optional call date, contigent call dates and redemption amount Notice Periods of 2 years Notice Periods of 2 years Notice period of 2 years (ex-traordinary/special right of cancellation in case of significant changes in tax ro regulatory treatment)


Coupons / dividends









































9a Issue price 100.0 100.0 100.0











Coupons / dividends







































9 Nominal amount of instrument (CUR of issuance) 5 (EURm) 4 (EURm) 2.8 (EURm)

9 Nominal amount of issuance (Euro) 5 4 2.8

9a Issue price 100.0 100.0 100.0











Coupons / dividends







































9 Nominal amount of instrument (CUR of issuance) 2.5 (EURm) 2.5 (EURm) 2.5 (EURm)

9 Nominal amount of issuance (Euro) 2.5 2.5 2.5

9a Issue price 100.0 100.0 100.0











Coupons / dividends







































9 Nominal amount of instrument (CUR of issuance) 2.5 (EURm) 1 (EURm) 0.5 (EURm)

9 Nominal amount of issuance (Euro) 2.5 1 0.5

9a Issue price 100.0 100.0 100.0











Coupons / dividends

17 Fixed or floating dividend / coupons Fixed Fixed Floating


















30 Write-down features nein7 nein7 nein7




















9 Nominal amount of instrument (CUR of issuance) 0.5 (EURm) 0.5 (EURm) 0.5 (EURm)

9 Nominal amount of issuance (Euro) 0.5 0.5 0.5

9a Issue price 100.0 100.0 100.0











Coupons / dividends

17 Fixed or floating dividend / coupons Floating Floating Floating



nein6 No (potential Replenishment precedes/overrides distribution of dividends


























2 Unique Identifier1 XS0126551695 XS0122667230 XS0104723266

3 Governing law(s) of the instrument English Law English Law English Law


4 Transitional CRR rules Tier 2 Tier 2 Tier 2



7 Instrument type bearer bond bearer bond (floating rate note) bearer bond


9 Nominal amount of instrument (CUR of issuance) 143 (USDm) 92 (EURm) 86 (EURm)


9a Issue price 100.5 100.0 100.0




12 Perpetual or dated Dated Dated Dated

13 Original maturity date 21.03.2031 22.01.2041 25.11.2039


15 Optional call date, contigent call dates and redemption amount Possibility of termination in case of a change in taxation leading to additional payments to the owner of the debt securities

Possibility of termination in case of a change in taxation leading to additional payments to the owner of the debt securities


16 Subsequent call dates, if applicable N/A N/A N/A

Coupons / dividends

















30 Write-down features No No No

31 If write-down, write-down trigger(s) N/A N/A N/A

32 If write-down, full or partial N/A N/A N/A

33 If write-down, permanent or temporary N/A N/A N/A

34 If temporary write-down, description of write-up mechanism N/A N/A N/A

35 Position in subordination hierarchy in liquidation participation certifi-cate/participation paper/trust preferred

participation certifi-cate/participation paper/trust preferred












7 Instrument type bearer bond (floating rate note) bearer bond (floating rate note) bearer bond




9a Issue price 100.0 100.0 100.0










16 Subsequent call dates, if applicable N/A Possibility of termination in case of a change in taxation leading to additional payments to the owner of the debt securities

N/A

Coupons / dividends



































7 Instrument type bearer bond bearer bond (floating rate note) bearer bond (floating rate note)




9a Issue price 100.0 100.0 100.0











Coupons / dividends

17 Fixed or floating dividend / coupons Fixed Floating Floating


































7 Instrument type bearer bond (floating rate note) bearer bond (floating rate note) bearer bond (floating rate note)




9a Issue price 99.7 99.3 100.0











Coupons / dividends



































7 Instrument type bearer bond bearer bond bearer bond


9 Nominal amount of instrument (CUR of issuance) 35 (EURm) 25 (USDm) 30 (EURm)

9 Nominal amount of issuance (Euro) 35 23.7 30

9a Issue price 100.6 100.5 100.0











Coupons / dividends

17 Fixed or floating dividend / coupons Fixed Floating Fixed


































7 Instrument type bearer bond bearer bond (floating rate note) bearer bond


9 Nominal amount of instrument (CUR of issuance) 22.7 (USDm) 20 (EURm) 20 (EURm)


9a Issue price 100.0 99.5 100.0











Coupons / dividends

17 Fixed or floating dividend / coupons Floating Floating Fixed




























2 Unique Identifier1 XS0122546442 XFNAM0009724 XS0121531122

3 Governing law(s) of the instrument English Law German Law English Law





7 Instrument type bearer bond registered bond bearer bond (floating rate note)


9 Nominal amount of instrument (CUR of issuance) 18.4 (USDm) 18 (EURm) 16 (EURm)


9a Issue price 100.0 100.0 99.9






14 Issuer call subject to prior supervisory approval Yes No Yes


No Possibility of termination in case of a change in taxation leading to additional payments to the owner of the debt securities


Coupons / dividends

17 Fixed or floating dividend / coupons Floating Fixed Floating





























3 Governing law(s) of the instrument English Law German Law German Law



5 Post-transitional CRR rules Ineligible Tier 2 Tier 2


7 Instrument type Yen bond Promissory notes Promissory notes


9 Nominal amount of instrument (CUR of issuance) 10000 (JPYm) 9.5 (EURm) 10 (EURm)

9 Nominal amount of issuance (Euro) 81 9.5 10

9a Issue price 100.0 100.0 100.0


10 Accounting classification Liability - fair value option Liability - amortised cost Liability - amortised cost




14 Issuer call subject to prior supervisory approval No No No

15 Optional call date, contigent call dates and redemption amount Extraordinary/Special right of cancellation/option to call/call option at/in case of tax changes; notice period of 2 years at the end of the financial year

No No


Coupons / dividends





















34 If temporary write-down, description of write-up mechanism N/A N/A Restorage in the subsequent year till the deposit's nominal value, as far no new deficit emerges. Restorage on silent particpations after downgrading pre-cede/override restorage of share capital and remuneration of reserves. But restorage is subordniated to the restorage demand of participation certifi-cates.








2 Unique Identifier1 XS0123007279 XFNAM0009815 XFNAM0009757

3 Governing law(s) of the instrument English Law German Law German Law





7 Instrument type bearer bond (floating rate note) registered bond registered bond




9a Issue price 100.0 100.0 100.0






14 Issuer call subject to prior supervisory approval Yes No No


No No


Coupons / dividends




























1 Issuer HSH Nordbank AG

2 Unique Identifier1 XFNAM0010292

3 Governing law(s) of the instrument German Law


4 Transitional CRR rules Tier 2

5 Post-transitional CRR rules Tier 2

6 Eligible at solo/(sub-)consolidated /solo & (sub-)consolidated Solo and (Sub-)Consolidated

7 Instrument type Promissory notes

8 Amount recognised in regulatory capital 0.2

9 Nominal amount of instrument (CUR of issuance) 10 (EURm)

9 Nominal amount of issuance (Euro) 10

9a Issue price 100.0

9b Redemption price 100.0

10 Accounting classification Liability - amortised cost

11 Original date of issuance 08.02.2007

12 Perpetual or dated Dated

13 Original maturity date 08.02.2017

14 Issuer call subject to prior supervisory approval No

15 Optional call date, contigent call dates and redemption amount No

16 Subsequent call dates, if applicable N/A

Coupons / dividends

17 Fixed or floating dividend / coupons Fixed

18 Coupon rate and any related inxed 4.62%

19 Existence of a dividend stopper No

20a Fully discretionary, partially discretionary or mandatory (in terms of timing) Mandatory

20b Fully discretionary, partially discretionary or mandatory (in terms of amount) Mandatory

21 Existence of step up or other incentive to redeem No

22 Noncumulative oder cumulative Noncumulative

23 Convertible or non-convertible Nonconvertible

24 If convertible, conversion trigger(s) N/A

25 If convertible, fully or partially N/A

26 If convertible, conversion rate N/A

27 If convertible, mandatory or optional conversion N/A

28 If convertible, specify instrument type convertible into N/A

29 If convertible, specify issuer of instrument it converts into N/A

30 Write-down features No

31 If write-down, write-down trigger(s) N/A

32 If write-down, full or partial N/A

33 If write-down, permanent or temporary N/A

34 If temporary write-down, description of write-up mechanism N/A

35 Position in subordination hierarchy in liquidation participation certificate/participation paper/trust pre-ferred

36 Non-compliant transitioned features N/A

37 If yes, specify non-compliant features N/A

LIST OF ABBREVIATIONS DISCLOSURE REPORT 123

ABCP Asset Backed Commercial Paper

ABF Asset Backed Funding

ABS Asset Backed Securities

AöR Anstalt öffentlichen Rechts

Avg. Average

ASU Ancillary services undertaking in accordance with Article 4 (18) CRR

BaFin Bundesanstalt für Finanzdienstleistungsaufsicht (Federal Financial Supervisory Authority)

Basel II / Basel III Baseler Framework Agreement

CCB Contercyclical Capital Buffer

CCF Credit Conversion Factor

CDS Credit Default Swaps

CI Credit institution in accordance with Article 4 (1) CRR

CoRep Common solvency ratio reporting

CRD Directive 2013/36/EU of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (Capital Requirements Directive)

CRR Regulation (EU) No. 575/2013 of 26 June 2013 on prudential requirements for credits institutions and investment firms as amended on 30 November 2013 (Capital Requirements Regulation)

CRSA Credit Risk Standardised Approach

CVA Credit Valuation Adjustments

DA Direct write-downs

DSGV Deutscher Sparkassen- und Giroverband (German Association of Savings Banks and Giro Banks)

EaD Exposure at Default (gross loan volume at the date of default)

EBA European Banking Authority (Europäische Bankenaufsichtsbehörde)

ECA Export Credit Agency

ECAI External Credit Assessment Institutions

EL Expected Loss

EMIR European Market Infrastructure Regulation

EU-Commission European Commision

ECB European Central Bank

FCR Foreign Currency Rating

FI Financial institution in accordance with Article 4 (26) CRR

Fitch Fitch Ratings

FV Total receivables

GuV Income statement

HGB Handelsgesetzbuch (German Commercial Code)

IAS International Accounting Standards

IFRS International Financial Reporting Standard

InstitutsVergV Institutsvergütungsverordnung (German Ordinance on the Remuneration of Financial Institutions) as amended on 16 December 2013

IRB Internal Rating Based

IRBA Internal Rating Based Approach

ISDA International Swaps and Derivatives Association

KWG Gesetz über das Kreditwesen/Kreditwesengesetz (German Banking Act) as amended on 23 December 2016

10. LIST OF ABBREVIATIONS


LBO Leveraged Buyout

LCH London Clearing House

LCR Local Currency Rating

LeDIS Legal Database Information System

LGD Loss Given Default

LLC Limited Liability Company

Ltd. Limited

M Maturity

MaRisk Mindestanforderungen an das Risikomanagement (Minimum Requirements for Risk Management)

Moody’s Moody’s Investors Service

OpRisk Operational Risk

OTC Over the counter

PD Probability of Default

PoWB Portfolio valuation allowances

PQC Process quality controlling

RechKredV Kreditinstituts-Rechnungslegungsverordnung

RSU RSU Rating Service Unit GmbH & Co. KG

RW Risk Weight

SFA Supervisory Formula Approach

SME Small and medium-sized enterprises

SolvV Solvabilitätsverordnung (German Solvency Regulation)

S & P Standard & Poor’s

SPV Special Purpose Vehicle

SR S Rating und Risikosysteme GmbH

TWR Bearer of economic risk

VaR Value-at-Risk IU Insurance undertaking in accordance with Article 4 (5) CRR

HSH NORD AN AG

HAMBURG: Gerhart-Hauptmann-Platz 50, 20095 Hamburg, Germany

Phone +49 40 3333-0, Fax +49 40 3333-34001

KIEL: Martensdamm 6, 24103 Kiel, Germany

Phone +49 431 900-01, Fax +49 431 900-34002

HSH-NORDBANK.COM

Documents

DISCLOSURE REPORT - HSH Nordbank · DISCLOSURE REPORT AS AT 3 ... Full reconcilation of components of own funds with the audited ... informal agreement in principle and defines it